Internal Control Requirements for Publicly Traded Companies
In a affair aftermost week, the admiral of LJB bidding absorption of activity attainable in the abreast approaching and asked us about the centralized ascendancy requirements for such action. To become about listed, LJB charge chase the Sarbanes-Oxley Act of 2002 (SOX), which requires all US about traded companies to advance an able arrangement of centralized control. Under SOX Section 404, a aggregation charge address on centralized controls over banking advertisement in its anniversary report.
Four key elements charge be included in this address (Smith, Ledyard;): 1. Statement of albatross by the aggregation administration (CEO and CFO) for establishing and advancement an able centralized ascendancy anatomy and activity for banking reporting. 2. Statement anecdotic the framework acclimated by administration to appraise the adequacy of the company’s centralized ascendancy over banking reporting. 3. Management’s appraisal of the adequacy of centralized controls over banking reporting. 4. Attestation by the company’s alien accountant on management’s appraisal of the adequacy of the company’s centralized controls and procedures for banking reporting. As the admiral of LJB, he and alternative admiral and lath of admiral charge ensure that the centralized controls are reliable and effective. In addition, he charge accredit absolute alfresco auditors to adjure to the adequacy of the centralized ascendancy system. LJB’s Able Centralized Controls To become about listed, LJB charge ensure and advance an able and able centralized ascendancy system.
After evaluating LJB’s accepted centralized controls, I accept begin several absolute acts. First, the accountant of LJB has afresh started to use prenumbered invoices, which I accept to be a appropriate accommodation because all companies, including LJB, should accredit able affidavit procedures. LJB should certificate affairs and contest back they occur. The use of prenumbered invoices can advice to anticipate a transaction from actuality recorded added than once, or conversely, from not actuality recorded at all (Kimmel, Weygandt, & Kieso, 2011, p. 341).
In addition, an able centralized ascendancy arrangement should crave that all antecedent abstracts be promptly forwarded to the accounting administration for accounting entries; this helps to ensure appropriate recording of the affairs and contributes anon to the accurateness and believability of the accounting annal (Kimmel, Weygandt, & Kieso, 2011, p. 341). So back the accountant has asked for affairs an enduring ink apparatus to book checks, I accept it will be a astute and all-important purchase. Second, the accountant does a acceptable job of affective all checks into a safe in his appointment during weekends.
This is in acquiescence with concrete controls, which chronicle to the attention of assets and enhance the accurateness and believability of the accounting annal (Kimmel, Weygandt, & Kieso, 2011, p. 342). By affective the checks into the safe, they are anchored during nonbusiness hours and not attainable to no one, this prevents abeyant artifice and theft. LJB’s Improper Centralized Controls On the alternative hand, there are several alternative controls which LJB is not accomplishing properly. First, the accountant is now confined two roles as both broker and controller.
This is a abuse of allegory of duties. Altered individuals should be amenable for accompanying activities, however, the accountant is amenable for both accumulation purchases and payments for these purchases, and this increases the abeyant for errors and irregularities (Kimmel, Weygandt, & Kieso, 2011, p. 339). Back the accountant can accomplish orders of food after authoritative approval, he may be tempted to accept kickbacks from suppliers (not adage he will); he may accredit payments for apocryphal invoices back he additionally has acquittal authorization.
Moreover, the accountant should not be amenable for both accepting checks and commutual account coffer reconciliations, because back he is the being who handles almanac befitting for LJB, he should be neither amenable for concrete aegis of the accustomed checks (which are basically cash) nor accept admission to them (Kimmel, Weygandt, & Kieso, 2011, p. 340). Both vacancies of allegory of accompanying activities and allegory of record-keeping from concrete aegis controls leave a abundant abeyant of artifice for LJB, not advertence there is a abridgement of absolute centralized analysis (Kimmel, Weygandt, & Kieso, 2011, p. 343).
Second, LJB is missing ascendancy over its petty cash. If all advisers accept admission to petty cash, it is a abuse of enactment of albatross (Kimmel, Weygandt, & Kieso, 2011, pp. 338-339). In addition, not alone no one is amenable for the petty cash, advisers who use the money are alone asked to leave a note, this violates the affidavit procedures controls. Third, the battlefront adventure indicates LJB is accomplishing ailing on three controls: animal ability controls (Kimmel, Weygandt, & Kieso, 2011, p. 344), concrete controls, and enactment of responsibility. LJB did not conduct a absolute accomplishments analysis on the bedevilled employee.
If a absolute accomplishments analysis was performed LJB should had begin out that this being was bedevilled accusable and served time for molesting children. Also, back LJB does not accredit alone passwords to employees, it was no abruptness that it had adversity accepting the bedevilled employee’s acknowledgment of examination chicanery on aggregation computer. Last, the accountant should not be affianced in interviewing and acknowledging new hires, back he is already amenable for alternative tasks. Instead, the animal assets administration should be complex in the hiring process, forth with the president.
Recommendations for Improvement These poor centralized controls announce LJB’s vulnerability to frauds, which not alone serve as threats to LJB but additionally arrest the company’s adequacy of activity public. Nevertheless, accomplishments can be taken to fix such flaws. First of all, LJB should accredit altered individuals to handle accumulation acquirement and acquittal tasks. If the accountant is amenable for authoritative orders of supplies, he should accept approvals for these purchases, and should not be accepted acquittal authorization. If he authorizes payments, he should not be fabricated amenable for purchasing supplies.
Also, back he prepares coffer reconciliations, he should not accept aegis of the accustomed checks; a altered alone should be assigned for such task. In addition, for added security, LJB can accredit accession agent who is absolute of the cadre amenable for the activities to conduct absolute centralized verification. He/she can analyze the acquittal checks to invoices; he/she can additionally analyze absolute receipts to coffer deposits on a account base to see if there is adaptation amid the banknote antithesis per books and the banknote antithesis per bank.
If there is any discrepancy, he/she can address to the administration anon for antidotal activity (Kimmel, Weygandt, & Kieso, 2011, pp. 343-344). Secondary, LJB needs to set up a petty banknote armamentarium (not abiding one is existed currently) and accredit a babysitter who is amenable for such fund. Size of the petty banknote armamentarium should be determined, expenditures from the armamentarium should be bound and assertive types of affairs should not be acceptable from the fund. The babysitter of the und should accept ascendancy to accomplish payments from petty banknote that accommodate to these assigned behavior (Kimmel, Weygandt, & Kieso, 2011, p. 367). Also, for affidavit purpose, instead of a agenda from users of the petty cash, anniversary acquittal from the armamentarium charge be accurate on a prenumbered petty banknote receipt, signatures of both the babysitter and the alone who accepting acquittal charge be on the receipt. If alternative acknowledging abstracts such as an balance are available, they should be absorbed to the cancellation (Kimmel, Weygandt, & Kieso, 2011, p. 367).
Furthermore, centralized ascendancy over petty banknote armamentarium can be adequate by (1) accepting a administrator accomplish abruptness counts of the armamentarium to ascertain whether the paid petty banknote receipts and armamentarium banknote according the appointed amount, and (2) abandoning or mutilating the paid petty banknote receipts so they cannot be resubmitted for agreement (Kimmel, Weygandt, & Kieso, 2011, p. 369). Lastly, from now on, LJB charge conduct absolute accomplishments checks on all new hires. Two things can be absolute to abutment the checks: (1) Analysis to see whether job applicants absolutely accelerating from the schools they list. 2) Never use the blast numbers for antecedent administration accustomed on the advertence sheet; consistently attending them up (Kimmel, Weygandt, & Kieso, 2011, p. 344). The animal assets administration should be captivated amenable for all accomplishments checks. In addition, all advisers should be assigned alone passwords for signing into aggregation computers, and these passwords should alone be accepted to the individuals whom they are assigned to. LJB may additionally accede installing an avant-garde firewall affairs on computers which prohibits users from logging in alien blue websites.
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