Acct 504 Case Study 2
Internal Control Requirements for Publicly Traded Companies
In a meeting last week, the president of LJB expressed interest of going public in the near future and asked us about the internal control requirements for such action. To become publicly listed, LJB must follow the Sarbanes-Oxley Act of 2002 (SOX), which requires all US publicly traded companies to maintain an adequate system of internal control. Under SOX Section 404, a company must report on internal controls over financial reporting in its annual report. Four key elements must be included in this report (Smith, Ledyard;):
1. Statement of responsibility by the company management (CEO and CFO) for establishing and maintaining an adequate internal control structure and procedure for financial reporting.
2. Statement identifying the framework used by management to evaluate the effectiveness of the company’s internal control over financial reporting.
3. Management’s assessment of the effectiveness of internal controls over financial reporting.
4. Attestation by the company’s external auditor on management’s assessment of the effectiveness of the company’s internal controls and procedures for financial reporting.
As the president of LJB, he and other executives and board of directors must ensure that the internal controls are reliable and effective. In addition, he must hire independent outside auditors to attest to the adequacy of the internal control system.
LJB’s Proper Internal Controls
To become publicly listed, LJB must ensure and maintain an adequate and effective internal control system. After evaluating LJB’s current internal controls, I have found several positive acts. First, the accountant of LJB has recently started to use prenumbered invoices, which I believe to be a right decision because all companies, including LJB, should establish proper documentation procedures. LJB should document transactions and events when they occur. The use of prenumbered invoices can help to prevent a
In a meeting last week, the president of LJB expressed interest of going public in the near future and asked us about the internal control requirements for such action. To become publicly listed, LJB must follow the Sarbanes-Oxley Act of 2002 (SOX), which requires all US publicly traded companies to maintain an adequate system of internal control. Under SOX Section 404, a company must report on internal controls over financial reporting in its annual report. Four key elements must be included in this report (Smith, Ledyard;):
1. Statement of responsibility by the company management (CEO and CFO) for establishing and maintaining an adequate internal control structure and procedure for financial reporting.
2. Statement identifying the framework used by management to evaluate the effectiveness of the company’s internal control over financial reporting.
3. Management’s assessment of the effectiveness of internal controls over financial reporting.
4. Attestation by the company’s external auditor on management’s assessment of the effectiveness of the company’s internal controls and procedures for financial reporting.
As the president of LJB, he and other executives and board of directors must ensure that the internal controls are reliable and effective. In addition, he must hire independent outside auditors to attest to the adequacy of the internal control system.
LJB’s Proper Internal Controls
To become publicly listed, LJB must ensure and maintain an adequate and effective internal control system. After evaluating LJB’s current internal controls, I have found several positive acts. First, the accountant of LJB has recently started to use prenumbered invoices, which I believe to be a right decision because all companies, including LJB, should establish proper documentation procedures. LJB should document transactions and events when they occur. The use of prenumbered invoices can help to prevent a