The Sarbanes-Oxley Act of 2002 (SOX) is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. Sarbanes-Oxley introduced major changes to policies that govern publicly traded companies. The significance of SOX was to regain the communities support and trust, after several financial scandals among large corporations. In this report, we will also consider your internal controls and highlight the goods practices, and suggest some amendments to poor practices.
Going public can offer numerous advantages to your company, such as an influx of cash which could aid the company’s expansion. However there are some changes that need to be made in order to satisfy certain rules and regulations for publicly traded companies. The main regulatory policy for public companies is the Sarbanes-Oxley act of 2002, which states that companies are required to maintain a system of internal control, document their controls, test the documented controls, and corporate executives and boards of directors must ensure that these controls are reliable and effective. Independent outside auditors must attest to the adequacy of the internal control system.
The purpose of maintaining good internal controls are to: Safegaurd assets,
Enhance accuracy and reliability of accounting records, Increase efficiency of operations, and Ensure compliance with laws and regulations.
Other suggestions if you decide to go public with your companies would include: SEC complaint financial reporting, establishing a checks and balance system with appointing board of directors for the company prior to going public, created and execute a code of ethics which applies to all directors, officers and employees, and finally guarantee that current records retention policy meets SEC requirements.
Upon our analysis of your company’s internal control system, we recognized some good and efficient internal control activities. Having long term employees provides is an asset which lowers your cost of training new employees. It also allows for the employee to feel trusted and part of a family. This is however not going to avoid all risk to your companies but is a better practice than to have new faces every quarter or even every year. (Risk Assessment).
The recent advancement to use pre-numbered invoice is a great improvement in practice. Pre-numbering helps to prevent a transaction being recorded twice or possibly even not being recorded at all. It will also help ensure that all transaction are being recorded and will limit employee’s ability to steal. (Control activities, environment).
Screening prior to hiring an employee is very important. It is also possible that when interviewing a candidate you may miss something. It is a very good practice to have two individuals interview the same candidate. However having two managers interview will not eliminate all undesirable situations but it will minimize it undesirable situations. (Monitoring and Controlling environments).
Furthermore, the intended purchase of the indelible ink machine is a good progress towards bringing in discipline on documenting procedure internal control. This procedure will provide control to sign checks imprinted by a check writing machine and comparing the check with the approved invoice. We highly recommend authorizing the purchase of the indelible ink check printing machine. I also wanted to point out that the accounts practices of moving the checks into the safe rather than leaving them unsecured is a great practice of controlling the environment.
These are some good practices in your internal control system which I suggest you continue practicing. I will make some suggestions to some practices that you may desire to change.
Poor practices and Suggestions
Every company is not perfect. There are protocols in all companies which