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Acct. 504 Case Study 2 Internal Control

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Week 5: Case Study 2 Internal Control

To: President of LJB Company,

Thank you for selecting our firm to provide your company with an evaluation of your organizations internal control system. Internal control systems are vital in securing your organizations assets, it will limit the risk of fraud as well as misuse of your assets. Comprehending how to separate duties among your employees will aid in improving transparency as well as keep your company financially strong.

Before the company decides to go public it is important to know that all publicly traded companies are required to maintain a system of internal controls and procedures for financial reporting in accordance with the Sarbanes-Oxley Act of 2002 (SOX) (Harrison, Jr., Horngren, & (Bill)Thomas, 2013). It is the responsibility of your managers to ensure that there are reliable and active controls in place, and auditors from outside the company must assess and state the soundness of the company’s internal controls. (Harrison, Jr., Horngren, & (Bill)Thomas, 2013) The purpose of this act is to reduce potential corporate fraud by mandating specific procedures for financial reporting.

Internal Control Requirement
Internal control has five components and it is recommended the LBJ Company to adopt the following components in order to meet the SOX Act. The five Internal control components are:
Control environment – Is the foundation for all other components of internal control, providing discipline and structure. Control environment comprise of the integrity, ethical values and competence of the entity’s people. (coso) Top management of LBJ Company should make it clear that the company values integrity and that unethical behavior will not be tolerated.
Risk assessment – The organization must identify and analyze the different factors that generate risk for the business and must decide how...

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