Acct504 Case Study 2

It has been brought to my attention that LJB Company is interested in pursuing becoming a public corporation. In order to do this, you must be aware that corporations are required to maintain an adequate set of internal controls. Internal control “consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the accuracy and reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations” (Kimmel, 327-328). All corporate representatives must be aware of these guidelines and ensure that all controls are effective; this is mandated under the rules of Sarbanes-Oxley. This is going to require a lot of planning, preparation and implementation. Benefit over cost should be looked at closely since LJB is a relatively small company, to be sure it’s of benefit to the company. If LJB moves forward with issuing stock, there are several questions that need to be addressed: How many shares of stock will be issued; how will be stocks be issued; what value will be assigned to each share? This internal report will address the how LJB can increase the effectiveness of its internal controls. The following components of internal controls should be assessed: Control environments, risk assessment, control activities, information and communication and monitoring.

Top management should closely look at the current controls, or lack thereof in the company. It appears that not all of the current controls are in compliance with SOX. Upper management needs to be sure that it is communicated effectively within the organization that unethical activities will not be tolerated and are grounds for immediate dismissal. The company also needs to address the risks that will face or has faced, such as fraud. Policies and procedures need to be put in place that will minimize the risks the company will face. Being a small company, LJB has a small number of employees. This will make it...