Acct504

Case Study 2

ACCT204

Cassandra Francis

Professor Berry

Under SOX, all public traded US corporations are required to maintain an adequate system of internal controls. Corporate executives and boards of directors must ensure that these controls are reliable and effective. As with any business, the transformation of going from a private to public requires some extensive planning and preparation. It is recommended that LJB being a relatively small sized company in terms of its employees should reevaluate the costs versus the benefits of being a public traded company. If they decide to go public in the near future there are some new internal control requirements to be aware of. The most basic component of the internal control system is the company management/leadership in the control environment. In my opinion, it is the responsibility of top management to make it clear that the organization values integrity and that unethical activity will not be tolerated. The second component of the internal control system is the company leading/managing its control activities. The control activities are the backbone of the company’s effort to address the risks it may face, such as fraud. In order to reduce the occurrence of fraud, management must design policies and procedures to address the specific risks faced by the company.

Since LJB is a relatively small company in terms of number of employees, this gives them an advantage over its competitors in the industry. Not only do it let your employees know you trust them it also develops loyalty and employee retention.

2. The accountant’s recent decision to switch to pre-numbered invoices was a great idea, and the purchase of an indelible ink machine will be an excellent investment. Pre-numbered invoices will help to prevent a transaction from being recorded more than once, or conversely, from not being recorded at all. Second, the control system requires that employees promptly forward source documents for accounting...