...Introduction Internal control methods and measures are adopted to safeguard assets, enhance accuracy and reliability of accounting records, increase efficiency of operations and ensure compliance with laws and regulations. Control environment. The management style and the expectations of upper‐level managers, particularly their control policies, determine the control environment. An effective control environment helps to ensure that established policies and procedures are followed. The control environment includes independent oversight provided by a board of directors and, in publicly held companies, by an audit committee; management's integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees; and the assignment of authority and responsibility. Control activities are the specific policies and procedures management uses to achieve its objectives. The most important control activities involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance. A short description of each of these control activities appears below. • Segregation of duties requires that different individuals be assigned responsibility for different elements of related activities, particularly those involving authorization, custody, or recordkeeping. For example, the same person who is responsible for an asset's...
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...An Examination of LBJ Distribution Company Internal Controls Infrastructure Pre IPO ACCT 504: Financial Accounting Keller Graduate School of Management Professor Ganesh Pandit Date: February 9, 2014 Pre IPO Examination of LBJ Distribution Company Internal Controls Infrastructure Prepared for: President, LBJ Distribution Company Prepared By: Véron S.A. Lake Company: LLMCO Date: 9 February 2014 Table of Contents Introduction 3 Purpose 4 Legal Requirement of Internal Controls 5 IPO Readiness: Financial Internal Controls 5 IPO Readiness: Recommendations 6 Reliable Monthly Reports 6 Adequate Staffing of Financial Departments 6 Implementation of Audit Infrastructure 6 IPO Readiness: LBJ Internal Control Strengths 7 Pre-numbered Invoices 7 Recommendations: Indelible Ink Machine 7 IPO Readiness: LBJ Internal Control Weaknesses 7 Staffing: Accounting Department 7 Staffing: Human Resource Department 8 Recommendations: Handling Petty Cash 8 Recommendations: IT Department Physical Controls 9 Conclusion 9 Works Cited 10 Introduction A company going public today is different than what it was in the dot com era; this is because the IPO landscape has changed significantly in the last decade (KPMG, 2013). Recently experts has seen compression in the markets, decreasing or shifting mergers and acquisition activity, faltering businesses and more scrutiny on balance sheets and company cash as well as access to capital (KPMG, 2013; Morgan...
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...Introduction………………………………………………………………3 Evaluation of Internal Controls at LBJ Company………………………..4 Efficiency of LBJ Company………..……………………………………5 Inefficient Practices at LBJ………………………………………………5 Recommendation to Purchase Indelible Ink Machine…………………….6 Conclusion……………………………………………………………….7 Work Cited...…………………………………………………………….8 To: LBJ Company President From: Duc Nguyen, Accounting and Consulting Subject: Evaluation of LJB Company’s Internal Control Structures Date: February 10, 2013 Introduction In this assessment we will attempt to evaluate and address the efficiency or inadequacy of the internal control procedures used within LBJ Company. Internal controls are a system of checks and balances designed to detect and prevent fraud and errors. The Sarbanes-Oxley Act requires U.S. companies to enhance their systems of internal control (Kimmel 186). Complying with the internal controls practices set forth by SOX Act prevents fraud, encourage efficiency and effectiveness of operations, and ensures a company’s compliance with applicable laws. Furthermore we see that because of Sox many companies are improving the quality of its financial reporting. Under SOX, all publicly traded U.S. companies are required to maintain a sufficient system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective (Kimmel 337). We will address the five critical areas of internal controls which consist of: 1. The Control Environment 2. Risk...
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...LBJ Internal Report Contents I. Introduction II. Sarbens Oaxley III. Internal Controls a. Strenths b. Weakness c. Recommendations for Improvements IV. Conclusion V. Works Cited I. Introduction The following internal report will list the requirements for LBJ Company to go public. The report was completed by an external accounting firm and is intended to advise LBJ Company of the strengths and weakness of their current internal controls. All weakness that are discussed include a recommendation to improve the internal controls of LBJ Company. II. Sarbens Oaxley Following the fall of Enron and Worldcom due to corrupt account practices, the United States implemented the Sarbanes Oaxley Act in 2002. Sarbanes Oxley, also known as SOX, is intended to protect investors from fraudulent accounting activities (SOURCE). LBJ Company will need to implement SOX policies and procedures prior to going public. This section of the internal control report will provide the SOX requirements needed by LBJ Company prior to going public. 1. Board of Directors- LBJ Company will need to create an independent board of directors. The board of directors should be financially literate. 2. External Audit- An independent external audit should be completed for LBJ Company. The external auditing firm may not also provide accounting consulting services to LBJ Company. 3. Annual Report- LBJ Company will need to include produce an annual...
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...An Examination of LBJ Distribution Company Internal Controls Infrastructure Pre IPO ACCT 504: Financial Accounting Keller Graduate School of Management Professor Ganesh Pandit Date: February 9, 2014 Pre IPO Examination of LBJ Distribution Company Internal Controls Infrastructure Prepared for: President, LBJ Distribution Company Prepared By: Véron S.A. Lake Company: LLMCO Date: 9 February 2014 Table of Contents Introduction 3 Purpose 4 Legal Requirement of Internal Controls 5 IPO Readiness: Financial Internal Controls 5 IPO Readiness: Recommendations 6 Reliable Monthly Reports 6 Adequate Staffing of Financial Departments 6 Implementation of Audit Infrastructure 6 IPO Readiness: LBJ Internal Control Strengths 7 Pre-numbered Invoices 7 Recommendations: Indelible Ink Machine 7 IPO Readiness: LBJ Internal Control Weaknesses 7 Staffing: Accounting Department 7 Staffing: Human Resource Department 8 Recommendations: Handling Petty Cash 8 Recommendations: IT Department Physical Controls 9 Conclusion 9 Works Cited 10 Introduction A company going public today is different than what it was in the dot com era; this is because the IPO landscape has changed significantly in the last decade (KPMG, 2013). Recently experts has seen compression in the markets, decreasing or shifting mergers and acquisition activity, faltering businesses and more scrutiny on balance sheets and company cash as well as access to capital (KPMG, 2013; Morgan...
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...LBJ Company “Going public in today’s environment” Table of Contents Preface…………………………………………………………….…Page 1 Introduction………………………………………………………Pages 1-2 Control Environment…………………………………………….Pages 2-3 Risk Assessment…………………………………………………….Page 4 Control Activities………………………………………………..Pages 4-9 Information & Communication………………………………...Pages 9-10 Monitoring……………………………………………………..Page 10-11 Summary……………………………………………………...Pages 11-12 References…………………………………………………………Page 13 Preface In the late 1990’s and early 2000’s the country witnessed accounting scandals in several large companies like Enron (which included Arthur Anderson), WorldCom, Rite Aid and Bristol-Myers Squibb. These companies were faced with satisfying investor’s desire for profits, trying to obtain loans on non-existing profits and they had to keep investor confidence high to keep revenues flowing in. However, in doing so, they cut corners and ultimately collapsed due to the lack of mitigating controls within their organizations, lack of management oversight and other acts of fraud. In 2002, Congress passed the Sarbanes-Oxley Act of 2002, also known as (SOX) to help circumvent these issues as it was having a devastating impact on the world economy. This legislation, specifically section 404, changed the face of how publicly traded companies handle their financial matters and the role of executive leadership within the organization in regards to the management assessment of internal controls. This is interpreted...
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...LBJ: SOON TO BE A PUBLIC COMPANY A Guide To Internal Control Table of Contents 1. Introduction 2. Internal Control Standards 3. LBJ’s Successes 4. LBJ’s Opportunities For Improvement 5. Conclusion Introduction This is a report for the LBJ Company to better assist with the needs of internal control. Our findings are based off of what has been shared with us by the company president on how LBJ Company operates on a day to day basis. It does seem as if there is a form of some internal control although it may be ineffective. Internal control is defined by Washington State Administrative and Accounting Manual (SAAM, 2002) as “all the policies and procedures management uses to achieve safeguard assists, ensure reliability and integrity of financial information, ensure compliance, promote efficient and effective operations, and accomplish goals and objectives. In order for LBJ to continue their success and achieve the opportunity to become a public company there will be a need to improve current practices and strengthen the internal controls.” If LBJ does not implement a strict code for internal control than the ability to go public may not be a successful outcome and the lack of policy and procedures may hinder the company overtime. These findings were made based off of the observations and conversations of how the day to day business of LBJ Company operates. The scale of changes can be very small to some very drastic but we must...
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...Case Study #2: Internal Control Most companies that start off as a private corporation want to ultimately become a public company in the future. Becoming public usually provides businesses the opportunity to raise capital in hopes of expanding. There are definitely some pros in becoming a publicly traded and owned entity. LBJ Company is considering going public in the future, and they are requesting the writer to evaluate their internal control systems. They would also like to be made aware of any new internal control requirements if they decide to go public. Lastly, they would like to know what they have been doing right and what they have been doing wrong, and whether or not they should purchase the indelible ink machine. The writer will now inform the president of LBJ of any new internal control requirements if they decide to go public. Internal control consists of all the related methods and measures adopted within an organization to safeguard assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. Internal control systems have five primary components and they are as follows: • 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. • Risk assessment. Companies must identify and analyze the various factors that create risk for the business and must determine how to manage...
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...November 27, 2011 Mr. John Jones: President LBJ Corporation 100 E Main Street Alexandria, VA 22303 First and foremost, thank you for selecting Swinton & Associates Accounting Firm to evaluate LBJ’s Internal Control Systems. I realize that there are a plethora of accounting firms that you could have chosen therefore; I wanted to express my sincere gratitude for trusting our firm to assist you with your needs. With that said, I have carefully assessed the information you provided to my colleague at the initial meeting regarding LBJ’s posture for going public. I have outlined the key areas of concern and have broken the areas down into the following categories: 1. Internal Control Requirements - After numerous corporate scandals came to light in the early 2000s, Congress addressed this issue by passing the Sarbanes-Oxley Act of 2002 (SOX). Under SOX, all publicly traded U.S. corporations are required to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. In addition, independent outside auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines, and company officers can be imprisoned. SOX also created the Public Company Accounting Oversight Board (PCAOB), to establish auditing standards and regulate auditor activity. Internal control consists of all the related methods and measures adopted...
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...Case Study 2 -Internal Control Dear Mr. President, I have completed my assessment of LBJ Company’s system of internal controls. To start off ‘companies generally design their systems of internal control to provide reasonable assurance of proper safeguarding of assets and reliability of the accounting records. The concept of reasonable assurance rests on the premise that the costs of establishing control procedures should not exceed their expected benefit.’ (Chp 7, Financial Accounting) Also, my advice is that this corporation started to implement the the Sarbanes-Oxley Act of 2002. In this Act we see that publicly traded companies must include a management report on the internal controls of the company. The annual report must include an attestation report from a registered public accounting firm. LBJ needs to maintain the internal controls up to date at all times. Part of my advice is that LBJ Company should focus on the six principles of internal control and the advices for each. The six principles of internal control are the following: * Establishment of Responsibility – Control is most effective when only one person is responsible for a given task. * Segregation of Duties – The work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. * Documentation Procedures- Companies should use prenumbered documents, and all documents should be accounted for. All the employees promptly forward source...
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...Companies Internal Control Requirements Becoming a publically traded company is a big decision. LBJ would have to weigh the cost versus the benefit. Investors want accurate records of the company’s earnings and finances. There are certain rules that a publically traded company must adhere to in order to be in compliance with the Sabarnes Oxley Act or (SOX). For smaller companies with less than 125,000,000 in revenue becoming publically traded and compiling with SOX can be a significant obstacle. “A company must have a set of rules in place that act as internal controls to prevent fraud and detect it when it does occur. In addition to maintaining internal controls a company must also hire an independent auditor to attest that the internal controls are adequate and working. The company’s executives and board of directors must ensure that these controls are reliable and effective (Kimmel, 2013)”. Although it is not required, most publically traded companies have established a code of conduct and also an ethics board to review questionable actions and decisions made. When there is a system in place that gives guidance and management supports that system it is less likely that an employee will be able to commit fraud or other unethical activities. Fraud can occur when there is opportunity, a perceived need due to financial pressure, and rationalization, what I am doing isn’t wrong. Preventing fraud is a matter of having controls which prevent opportunity, maintaining control and promoting...
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...SEPTEMBER 30, 2014 ACC504 INTERNAL CONTROL DR. MICHAEL ABNER PREPARED BY NELLY OYANE Table of Contents Introduction I. Internal Control Requirements II. What the Company is Doing Correct III. What the Company is Doing Incorrect Conclusion References Introduction LBJ Company is presently conducting a decision to go public or not and with that they will also be familiar with their internal controls inside their systems, particularly with regard to Accounting and Human Resources and the way it will affect them and their workers and of course the way they operate. There have been some encouraging and bad issues arise regarding their internal controls. Nevertheless, LBJ Company needs to be recognized for what they are doing right, but must also need to address matters that are harmfully affecting them and their business and will remain to damagingly impact them if they choose to go public, which will negatively drive down the cost of their shares etc. This case study will examine these matters and make recommendations for what LBJ Company can do to strengthen their internal controls. I. Internal Controls Requirements Inform the President of any new internal control requirements if the company decides to go public. Internal controls are mechanisms, policies and procedures used to decrease and control operational risk. In order to prevent employees from committing...
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...LBJ DISTRIBUTION COMPANY AUDIT REPORT Unqualified Opinion (For the President) By SANDRA LADSON 09/29/12 [pic] Table of Contents Page 1. Executive Summary............................................................................................................3 2. Background/Introduction...................................................................................................3 3. Objectives & Method ....................................................................................................3 4. Disseminating info and presenting results………………………......................................4 4.1 What is good?.................................................................................................................. ..4 4.2 What is bad?.......................................................................................................................4 6. Recommendations and Action plans ………………………………………….………….….4 7. Conclusion………………………………………………..........................................................5 8. Acknowledgements.............................................................................................................5 9. Cited………………………………………………………………………………………………….5 EXECUTIVE SUMMARY LBJ Company a local distribution company has solicited the Langford Accounting Firm to present to the President of the company, an “unqualified...
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...LBJ Company ATTN: President of LBJ Company Dear Sir: Our investigation was completed on February 8th, 2013, and there are some concerns about the current internal control of the company. Our recommendations of the new internal control our based on Sarbanes Oxley Act; we believe this information will serve its purpose to fit the needs of LBJ Company. New Internal Control Requirements: According to the investigation, we reviewed the following areas of internal control that need to be under the Sarbanes Oxley standards: * Human Resource Control * Segregation of Duties * Establishment of Responsibilities * Physical Control * Proper Documentation Procedures * Independent Internal Verification Evaluation of Current Internal Control: There are two areas that have positive standards in the LBJ Company: * Transaction management * Risk assessment We reviewed some of the internal control within your company that shows a positive impact. We identified that the company uses pre-number invoices for cash to be posted by invoice number. LBJ’s risk assessment identified that there are certain risks that could have some negative effects if these risks are not managed properly. We do not recommend purchasing an indelible ink machine to print checks because it would violate segregation of responsibilities, which states “the responsibility for record-keeping for an asset should be separate from the physical custody of that asset” (p. 228). Internal...
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...Case study 2 Internal control LBJ Company. On behalf of my company, we are pleased to be helping LJB Company in the transformation process from being private to become publically traded company. The transformation process is costly and needs a lot of preparations and planning, since LBJ is relatively small company it should take into consideration the cost of turning to a public company versus the benefits of it. If the company decided that it would benefit more if it turned to a publically traded company, certain internal control policies should be implemented to comply with the Sarbanes- Oxley Act. First, management needs to maintain an adequate system of internal control by: 1. Management will need to provide quarterly periodic reports to evaluate the efficiency and reliability of their internal control procedures. 2. Management should attest the accuracy and fairness of the financial statements. 3. External outside auditors must certify the accuracy of the financial records. Compliance with an adequate internal control system will help the company to safeguard its assets, improve the reliability of the accounting records, increase efficiency of operations and ensure compliance with all rules and regulations which leads to the attraction of potential investors and buyers. (Kimmel 2001) There are five main components that establish an effective internal control system which are 1. Control environment. 2. Risk assessment. 3. Control activities...
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