Case Study 2 – Internal Control
October 4, 2014
1. New Internal Control Requirements If the Company Decides to Go Public. If the company decides to go public it should include in its annual reports the company’s internal control over financial reporting. This report must include: a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting; management’s assessment of the effective of internal control as of the end of the most recent fiscal year; and a statement that the registered public accounting firm that audited the company’s financial statement included in the annual report has issued an attestation report on management’s assessment of the company’s internal control over financial reporting. Also under the new rules, there is a requirement that management evaluate changes in the firm’s internal control during the fiscal quart it affected, or is reasonably likely to affect. 2. Positive Company Procedures.
One thing the company is doing right is completing the monthly bank reconciliation. This ensures there are no errors within the company or with the financial institution they are currently using. Another thing the company is doing is using pre-numbered invoices. This will ensure no invoices are being paid twice and are paid in a timely manner within the regulations of GAAP. The company should not purchase the indelible ink machine to purchase their checks. That is an expense that can be saved, leaving the cash on hand to go to correcting issues within the organization. 3. Violations and Improvement
Below are a list of items that should be addressed immediately along with recommendations to correct. 1. Separation of Duties; the accountant should not be acting as treasurer and controller. If possible, another currently employed accountant should take over one of the positions, if not another accountant should be hired. 2. Distribution of...
References: Final Rule: Management 's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports. (2008, August 28). Retrieved September 30, 2014, from http://www.sec.gov/rules/final/33-8238.htm
Harrison Jr., W., Horngren, C., & Thomas, C. (2013). Internal Control & Cash. In Financial Accounting (9th ed., pp. 238-239). Pearson Education.
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