Question 3: Briefly discuss the key events that led up to the Sarbanes- Oxley Acts of 2002 and the Creation of the PCAOB.
Answer 3: In the mid 1990s America experienced a flourishing economy. The stock market rate rose at increasing rates. This motivated accounting firms to desire to expand their business. In the 2000s there was a bubble burst, stock prices plummeted as investors fled the market. IPOs also disappeared and this event led to the revelation other flaws in the market. It became apparent that the boom years had been accompanied by fraud. Corporations such as Enron, WorldCom, Tyco and Adelphia had a lot of misconduct in business principles. There was lack of fairness and integrity due to conflict of interest. Corporations focused on short-term goals. A lot of managers adjusted financial result to meet the projected results.
Question 5: Compare and contrast management’s responsibility for the entity’s financial statements with the auditor’s responsibilities for detecting errors and fraud in the financial statements.
Answer5: Managements are responsible for presenting fair financial statements in conformity with general accepted accounting principles and auditors are confined to express his or her opinion on the information provided. Auditors are responsible to check if managers are conforming to GAAP with no errors and materiality. Management and auditors both have to conform to GAAP.
Question 9: What kind of organization is PCAOB, why was it formed, and what does it do?
Answer 9: PCAOB is a quasi-governmental organization (government owned corporation) over seen by the SEC. Formed to provide governmental regulations of the standards used in conducting public company audits because of a perceived failure of the profession to adequately regulate itself.
Question 10: What role does the SEC play in the establishment of accounting and