Fi 504 Case Study 2 Essay

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LJB COMPANY: Internal Control Review I. NEW INTERNAL CONTROL REQUIREMENTS FOR GOING PUBLIC Sarbanes-Oxley Act of 2002 (SOX), enacted on July 29,2002, is a United States Federal law that imposed new rules and regulations for all US public companies. Under SOX Section 404, all publicly listed corporations are required to maintain an adequate system of internal control. Under SOX, corporate executives and the board of directors are personally responsible for making sure that the internal controls in place are effective and reliable. Independent auditors should also attest to the reliability of the said internal controls. Failure to do so would result to fines and/or imprisonment1. The following should be included in LJB…show more content…
In their current process, LJB Company’s sole accountant serves both as their treasurer and controller. He receives the checks and completes the bank reconciliation. Going forward, LJB Company should establish a system of internal verification. The accountant can receive the check but someone else should do the bank reconciliation. If LJB Company decides that they don’t want to hire more people and just go lean, the accountant can continue to receive the check and perform the bank reconciliation as long as the manager review it regularly. B. Establishment of Responsibilities What is in place: All employees have access to the petty cash drawer in a desk drawer and whenever they use any cash, they are only asked to leave a note. Why it is not effective: LJB Company should make sure that each employee’s responsibilities are properly established. By giving all employees access to the petty cash drawer, it is very hard to keep track the list of people who actually got money from the drawer (since they can just refuse to place a note) and how much money was actually taken (since it’s very hard to confirm whether the amount on their note is the actual amount they took). Recommendation: LJB Company should disburse the petty cash fund to a specific person, which would be the custodian. The custodian would be responsible for disbursing the money and collecting the receipts from the employee or

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