LJP Company: Internal Control Case Study
November 29th 2013
Table of Contents
Introduction pg. 3
Establishing Policies and Procedures pg. 3-4
Applicable Internal Control Principles pg. 4-5
Needed Applicable Internal Control Principles pg. 5-6
Conclusion pg. 7
References pg. 8
When the President of the LJB Company began inquiring about the internal system controls of the company, it was brought to light that the company may not be following a strict guideline of effective internal controls, exposing themselves to abuse, fraud and risk. It should be stated, “The control environment is the organizational structure and culture created by management and employees to sustain organizational support for effective internal control (Griffin, 2013).” When evaluating this case, LJB Company is not yet ready to ‘go public’ and need to step back, reevaluate their policies and regulations on internal controls which cannot be ignored, initiate new rules for the employees in regards to petty cash handling as well as develop a new way of hiring and examining potential candidates for empty positions.
Establishing Policies and Procedures
At some point when the company decides to obtain an IPO and go public, it will have to begin the following of Sarbanes-Oxley Act, in which it will need to develop an adequate system of internal control. These internal control components will go as following:
* 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. This component is often referred to as the “tone at the top.”
* Risk assessment- Companies must identify and analyze the various factors that create risk for the business and must determine how to manage these risks.
* Control activities- To reduce the occurrence of fraud, management...