Evaluation of the Lbj Company System of Internal Controls

EVALUATION OF THE LBJ COMPANY SYSTEM OF INTERNAL CONTROLS

Prepared for

The President of LBJ Company

123 Santa Monica Blvd.

Santa Monica, CA 90067-3443

Prepared by

October 1, 2011

Letter of Authorization ii.

September 23, 2011

Chartered Financial Analyst

Hollywood Squares Accounting Firm

777 Century Park East

Century City, CA 90067

Dear

As I explained to your colleague at our meeting at the Pink Taco, I want your team to evaluate the current system of internal controls in place at LJB.

LJB will be going public in the near future and we want to be comprehensively aware of the new regulations that may be required of our company to meet. Moreover, we would like you to recommendations on how can improve our current system.

I need your report by the first week in October. Please let me know if you encounter any problems or have any questions.

Sincerely,

The President of LJB Company

Letter of Transmittal iii.

Hollywood Squares Accounting Firm

777 Century Park East

Century City, CA 90067

October 1, 2011

Mr. President

LJB Company

123 Santa Monica Blvd.

Santa Monica, CA 90067-3443

Dear Mr. President:

My team has completed the analysis and evaluation you requested. This report identifies areas in your system of internal controls; where critical adjustments must be implemented without delay.

Similarly, we have identified areas where the methodology is adequate and will suffice. We appreciated the opportunity to evaluate your system of internal controls and enjoyed the experience.

Sincerely,

TABLE OF CONTENTS

Letter of Authorization..............................................................................................................................................ii

Letter of Transmittal.................................................................................................................................................iii

Introduction................................................................................................................................................................1

Internal Control Requirements...........................................................................................................................1- 2

Scope of this Report....................................................................................................................................2

Limitations of this Report...........................................................................................................................2

Processes Not Requiring Modification..................................................................................................2 - 3

Processes Requiring Modification......................................................................................................................3 - 5

Conclusion and recommendations..................................................................................................................5 - 8

1.

Our findings disclose that there are six principles of control activities that must be incorporated into your internal controls system;

* Establishment of Responsibility

* Segregation of Duties

* Documentation Procedures

* Physical Controls

* Independent Internal Verification

* Human Resources Controls

INTERNAL CONTROL REQUIREMENTS

If LJB company decides to offer shares of the company to the public, the one thing your company must be ready to promptly respond to is the mandate of the Sarbanes-Oxley Act of 2002 (SOX). SOX states that; "all publically traded U. S. corporations are required to establish and maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective".

In addition, independent outside auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines, and company officers can be imprisoned. For this purpose, it is imperative that LJB Company comply with the suggested proposal within a deliberate and concise period of time.

2.

Scope of this Report

The scope of this report will analyze the processes as they are utilized in your existing system of internal controls. The recommendations that are given in this report will fulfill the requirements necessary to comply with the Sarbanes-Oxley Act and its mandates as well as assist in attaining the most efficient use of the system of internal controls.

Limitations of this Report

The recommendations presented may or may not meet the requirements of reasonable assurance where the concept of reasonable assurance relies on the premise that the cost of establishing control procedures should not exceed their benefit. Other limiting factors are; the size of business as well as the human element as it pertains