Fi 504 Case Study 2

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Case Study 2 FI504 1. If LJB Company decides to go public, there will need to be some changes to their day-to-day operating practices. The Sarbanes-Oxley Act of 2002 (SOX) was put in place by the United States government to require publicly traded corporations to have an adequate system of internal control. External auditors must check the internal control system, and specific requirements must be met. There are five primary components of internal control systems: a control environment, risk assessment, control activities, information and communication, and monitoring. LJB Company will need to have a defined structure for all five of these aspects in order to conform to SOX standards, the most important of which is the control activities. 2. There are a few things that LJB Company is doing that are recommended practices and help with internal control processes. One of these is the use of pre-numbered documents (invoices). This method prevents a transaction from being recorded more than once, or from skipped. If checks are being written at LJB Company, the best way to do this is with a machine that uses indelible ink. The blank checks should be stored in a safe or vault with restricted access. Having an indelible ink check printing machine will follow control activities stage of internal controls, because this piece of equipment will help to reduce the chance of fraud. There seems to be a good control environment within LJB Company; the president takes an active role in showing that integrity and unethical activities are not acceptable. The president is also aware of events within the company, and stays on top of his responsibilities. 3. There are a variety of things that LJB Company could improve upon. One of the first things that is visible from the notes is that one accountant covers the position of both Treasurer and

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