Case study 2 LBJ Company internal con Essay

Submitted By TeresaJames1
Words: 1189
Pages: 5



Internal control requirements for public companies

internal control strengths

internal control Weakness


Work Cited


Internal control is a plan of organization and a system of procedures implemented by company management and the board of directors designed to accomplish the safeguard assets of the company, to follow the company policy, to ensure accurate, reliable accounting records, to promote operational efficiency and to comply with legal requirements. (Financial Accounting Textbook, 2013). Public companies have the added responsibilities to comply with the Sarbanes-Oxley Act of 2002 (Kravitz, 2014) and the Securities and Exchange Commission requirement to maintain internal control over financial reporting (Internal Control Frequently Asked Questions, 2007). This analysis will examine the internal control requirements for public companies and LBJ Company internal control strengths and weaknesses.

internal control requirements for public companies

All public trades companies must implement and report internal accounting controls to the Securities and Exchange Commission (SEC) and Sarbanes-Oxley Acts (SOX) for compliance. SEC requires that all companies must reveal to the public the truth about their financial information and risk of investing. Sarbanes-Oxley Act (SOX), which was, establish in 2002 because of pass corporation financial scandals. SOX requires that all company must be governance and held accountability for company actions. (Peavler, 2014). All financial reports must include internal control report, disclose on any information concerning changes within company financial operates. In order to provide such a report and to comply with the SEC requirements, a system of internal control must be established. The following is an analysis of LBJ Company internal control strengths and weaknesses.

internal control strengths

• The use of pre-numbered invoices can help ensure that all sales are recorded properly. A reconciliation of the pre-numbered invoices to the sales that are recorded in the accounting system can help ensure accuracy, authorization, and completeness of sales information.
• Undistributed payroll checks are secured in the accountant’s office safe. Proper internal control would limit access to the office safe.

Internal Control Weaknesses
The accountant has numerous duties which violate good internal control principles:
• Serves as treasurer and controller. Although these two duties seem related they are usually held by separate individuals in order to fix responsibilities for a given task. A treasurer is normally responsible for corporate liquidity, investments, and risk management of a company’s financial activities. (Treasurer Job Description, 2014) The controller is accountable for the accounting operations of the company, including the production of periodic financial reports, maintenance of an adequate system of accounting records, and a comprehensive set of controls and budgets designed to mitigate risk, enhance the accuracy of the company's reported financial results, and ensure that reported results comply with generally accepted accounting principles or international financial reporting standards. (Controller Position Description, 2014) The company needs to have control procedures, making sure a separation of duties to avoid fraud and embezzling. While a smaller company may not be able to separate these duties into two separate employees, compensating internal controls need to be implemented in order to mitigate the risk. Additional reviews and reconciliations by other employees should be implemented to strengthen internal control.
• Initiates purchases and authorizes payments for these purchases, the company is at risk, and they should assess the possibility of fraud and theft. The same employee performing these duties increases the risk of unauthorized or fraudulent purchases. The