Internal Control

Internal Control

FI504: Accounting and Finance Managerial

[Type the author name]

2/4/2012

The first issue that needs to be addressed is the fact that the company is soon going public. Any and all companies that are public must meet the standards of the Sarbanes-Oxleys Act of 2002, particularly SOX section 404. This means that managers must prepare an annual assessment of the internal controls over the financial reporting. If the company has not yet done so, they must meet all the requirements and make sure that their internal controls and accounting principles are in compliance with the US Generally Accepted Accounting Principles (GAAP). A company that has good internal control has five components. The first is control environment which is the awareness of internal control among managers. The next is risk assessment, which can be broken down by qualitative or quantitative value in terms of risk among the company’s potential loss and probability that the loss will happen. Third is, control activity, this includes any measure of control such as segregation of duties and dual control. Fourth is information and communication which is the systems of process in which information is captured accurately. Last is monitoring, this is a process that is used to evaluate the internal controls over time to maintain accuracy and quality.

404 of the SOX act also states that all public companies must be audited by an independent auditor (an auditor who does not work for or have related party relationships with the company that hired them). The independent auditor will test the company's internal controls and deem whether or not the company's financial statements are in conformity with GAAP. The auditor's report will give an opinion based their findings. This report is available to the public and used by any stakeholder of the company.

Although there are some things of concern with the company, there must be some things right if they are deciding to go public....