Acct504 Case Study 2

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ACCT 504 Case study 2 I would like to present to you and your staff that if your company wants to go public in the future, you should prepare your company and employees to comply with some laws and regulations that is essential to the health of your company. For example the Sarbanes–Oxley Act of 2002, also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and more commonly called Sarbanes–Oxley, or SOX. This is the United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. As a result of SOX, top management must now individually certify the accuracy of financial information and follow some internal controls. In addition, penalties for fraudulent financial activity are much more severe. Also, SOX increased the independence of the outside auditors who review the accuracy of corporate financial statements, and increased the oversight role of boards of directors. If LJB decides to issue stock, company should know how many shares should be authorized for sale and what value should be assigned to the stock. The next issue is internal control. Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. Internal control systems have five primary components as listed below. 1. A control environment. It is the responsibility of top management to make it clear that the organization values integrity and that unethical activity will not be tolerated. This component is often referred to as the “tone at the top.” 2. Risk assessment. Companies must identify and analyze the various

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