Internal Control - Case Study Example

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Internal control in auditing and accounting is defined as the process that assures the objectives of an organization are achieved in operational efficiency and effectiveness, policies and regulations, compliance with laws, as well as reliable financial reporting (Trenerry,…
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Internal Control
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Download file to see previous pages This paper will cover internal control requirements for a company, which decides to go public. The second concern to be addressed will be advice on the right things the company is doing and recommendation on a pending decision. Finally, the paper will address the things that the company is doing wrong and recommend ways of improvement.
The action of taking a company public is considered as one of utmost importance. Remarkably, such an action has to be taken by the Chief Financial Officer in consultation with the Chief Executive Officer and the board. Going public comes with its own challenges and changes to the enterprise.
The internal control requirements for LJB Company will change considerably with the decision to go public. As a small enterprise or a local distributor, senior management is involved in multiple responsibilities, which changes once the company goes public. One of the new internal controls will be separation/segregation of duties or assertions categorization (Whittington & Pany et al., 2004). Financial activity will have to be divided on clear boundaries to avoid overlapping duties. A single person will separate authorization of transactions, record keeping, and custody roles to prevent error or fraud. Another new control requirement will be the performance of internal audits verified by external auditors as stipulated under the Sarbanes-Oxley Act. This is under the principle of independent review.
LJB Company has an accountant, which is good for financial aspects of internal control. The accountant is tasked with retention of records by maintaining documents to substantiate transactions, which is being done at LJB as well. The accountant is also rightfully tasked with the duty of receiving checks and completing the monthly bank reconciliation. It would be advisable to buy the indelible ink machine to keep track of the pre-numbered invoices. This will result in accuracy in terms of the principle of record keeping. Numbering ...Download file to see next pagesRead More
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