...Open Journal of Accounting, 2013, 2, 8-15 http://dx.doi.org/10.4236/ojacct.2013.21003 Published Online January 2013 (http://www.scirp.org/journal/ojacct) Sarbanes-Oxley and the Accounting Profession: Public Interest Implications Sara Ann Reiter1, Paul F. Williams2 2 1 Binghamton University, Binghamton, USA North Carolina State University, Raleigh, USA Email: sreiter@binghamton.edu Received October 31, 2012; revised December 1, 2012; accepted December 12, 2012 ABSTRACT The US accounting profession was caught up in, and some say responsible for, the whirlwind of accounting and business scandals that rocked the US markets in 2002. To restore investor confidence in financial information, the Sarbanes-Oxley Act created a new Public Company Accounting Oversight Board with the authority to set standards for auditors of publicly traded companies, thus ending a century of professional regulation of auditing. In this analysis we employ sociological theories of professionalism [1-4] to help understand the implications of the Sarbanes-Oxley legislation for the accounting profession and for the public interest. We explain why professional self-regulation is important for retaining valuable economic franchises. We also explain why the public interest orientation of the profession is important and how government take-over of auditing standards potentially erodes the public accounting profession’s commitment to the public interest. Self-control over professional work, a key characteristic...
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...• The Enron debacle created what one public official reported was a "crisis of confidence" on the part of the public in the accounting profession. Lists the parties who you believe are most responsible for the crisis. Briefly justify each of your choices. The debacle of Enron, a US firm is looked upon as the worst debacle and fall out in the history of US bankruptcy filed cases. There are many parties involved when it concern to Enron debacle, which was accorded to accounting instability and the compromising factor of accounting profession itself. Out of the many parties in the league and the major force behind the debacle of Enron concern Andersen's, the accounting and auditing firm that once deserved name in the industry for its conscience in accounting professional services and auditing. As the case relates to, accounting audit for Enron is attended by Andersen's since long enough. However, the interesting feature is that some compromise in the profession of accounting services by Andersen's was notable, given that there are noteworthy feature of stock manipulation, especially in financial statements of Enron attended and audited by Andersen's. The statement and restatement of Enron also gives some probable indication for manipulation of accounting, where debate and counter debate in that regard from the prying eye of the media was a common feature. Thus, the involvement of Andersen's in Enron consultancy and professional auditing makes it rather more imploded for the direct...
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...Introduction The purpose of auditing is increasing the confidence of people who want to do investment. In order to check the financial statement of listed companies, auditing become more and more important in the society. The people cannot know more the situation about listed companies, so they use auditors’ report to think their investment. However, with more and more scandals about auditing, many people think whether external auditors’ reports provide information to investor that serves the public interest under the current regulatory environment. The public interest First, it is important to know what the public interest is. In order to know the public interest better, we can understand it separately. The public represents social that is abstract concept. It conflicts the private that is specific and certainly. Social is universality and uncertainty. Its function is adjective interest. The International Federation of Accountants (IFAC) defines the public interest as ” The net benefits derived for, and procedural rigor employed on behalf of, all society in relation to any action, decision or policy.” It means that everyone in the society may obtain the interest from all society in relation to any action, decision or policy. The auditing profession is relation to the benefit to the society. The public interest from auditing profession is like the responsibility of this profession. This interest is not direct interest, but the auditors will use their behavior to show their...
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...Payal Mehta ACC416 October 1, 2013 Auditing Research Paper The profession of auditing plays a very important role in our economy especially after Congress passed the Sarbanes-Oxley Act its role in the economy was greatly solidified. Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person. “The auditing profession offers a wide range of employment opportunities for new accountants. Most accounting firms offer client services in three areas: auditing, tax, and consulting. A new accountant might be hired to work in any of these areas. In the audit area, the accountant may work for a variety of clients including private or public companies, clients in banking, insurance, manufacturing, technology, retail, health care, or government. Individuals working in the audit area may also spend most of their time providing internal audit services to clients rather than working as an external auditor. Working in any of the areas in an accounting firm may be one of the most demanding jobs, but it is also one of the most interesting, exciting experiences and a great way to prepare to work in the corporate business world.” “What is Auditing?” Web. 29 September 2013 Accounting is the recording, classifying, and summarizing of economic events in a logical manner...
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...DeLaune/Simonov From: Courtney Lancaster Date: October 15, 2013 Subject: History of the Auditing Profession Similar to all aspects of the accounting profession, the auditing focus in the business world has evolved considerably over its history. The main drive behind the changes has been new legislation and a strict enforcement standard which more times then not was influenced by the fraudulent activity delivered by corporate management. By the creation of oversight policies and standard setting entities, these countless scandals have shaped the accounting and auditing profession into what we know today. In 1986 the state of New York passed legislation in which the credentials regarding a Certified Public Accountant were formally acknowledged and recognized, thus creating the accounting profession itself. In 1913 the United State of America ratified the 16th amendment leading to the creation of income tax causing a spike in demand for accountants. While these changes in legislation were coming about and the profession itself was growing rapidly there was still no entity in the US that regulated the profession. In 1917 the first step to set a standard for the profession was put into action. The Federal Reserve Board and Federal Trade Commission requested that American Institute of Accountants produce a bulletin for a standardization of auditing procedures. A publication titled “Uniformed Accounting” was released shortly after as a first set of published standards. While it was still...
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...Corporation. Instead of becoming the nation’s greatest company, Enron instead laid claim to being the largest corporate bankruptcy in the history. The greediness and egotism wiped out the honesty and integrity that should instill on the persons who were involved in this case. Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most respected accounting firms in the world through his reputation for honesty and integrity. His motto was “Think straight, talk straight” and he insisted that his clients adopt that same attitude when preparing and issuing their periodic financial statements. Arthur Andersen’s auditing philosophy was not rule-based; instead he invoked a substance-over-form approach to auditing and accounting issues. He avidly believed that the primary role of the auditor was to ensure that clients reported fully and honestly to the public, regardless of the consequences for those clients. Ironically, Arthur Andersen & Co.’s dramatic fall from eminence resulted from its association with a client known for aggressive and innovative uses of “accounting gimmicks” to window dress its financial statements. Enron Corporation was the second largest client of the firm and was involved in large, complex transactions with hundreds of special purpose entities (SPEs) that it used to obscure its true financial condition and operating results. Among other uses, these SPEs allowed Enron to download underperforming assets from its balance...
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...Nature of Auditing and the Public Accounting Profession 1. Auditing neither creates goods nor adds utility to existing goods and therefore does not add value to business. Auditing exists only because it has been legally mandated. Auditing exists because it is needed by the company. It is beneficial to users who need assurance if their financial statements reflect economic conditions that occurred in a period. Without reliable information, companies might make less effective decisions which are risky for the value of business. It may neither create goods nor add utility to goods but it adds value to business because it is a source of information for a business’ decisions. 2. The failure of the public accounting profession to warn us of the problems that existed in the economy is an example of a profession not adding utility to society. Accounting records, classifies, and summarizes economic events to provide financial information for decision making. It does not study the problems in the economy but it helps management to make effective decisions despite economic problems. That way, accounting profession is an added utility to society. 3. The only reason I would hire an auditor is with the expectation that the auditor search for and find any fraud that might exist within my company. Searching for fraud should be the primary focus of an audit. Fraud involves deception that can result to material misstatements of financial information and is not good for...
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...of massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, President George W. Bush signed into legislation during 2002 the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most importing accounting standards that are used every day by auditors of public companies. This paper takes a look at the Sarbanes-Oxley Act of 2002 and its effect on internal controls and small businesses. Also, I will discuss the purpose and specific pronouncements related to accounting information systems and internal controls; as well as the impact of possible future pronouncements. Keywords: Sarbanes-Oxley, PCAOB, Accounting information systems The Sarbanes-Oxley Act and the PCAOB Massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, led to the creation of the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession since it was signed into law. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most importing accounting standards that are used every day by auditors of public companies....
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...ACCOUNTING STANDARDS AND REGULATIONS ACCOUNTING STANDARDS & REGULATIONS During the year 2002, the accounting profession was subjected to a series of highly publicized scandals. For example, it was discovered that the prestigious Arthur Andersen firm had played a role in the fraudulent reporting practices that led to the bankruptcy of the Enron Corporation. Andersen accountants had helped the company hide its losses, and had shredded important documents that were relevant to the case. In June 2002, Andersen was found guilty of obstructing justice, was fined $500,000, and was sentenced to five years probation (Sachdev, n. p.). Also during 2002, the telecommunications firm WorldCom was found guilty of fraud as a result of having “improperly accounted for more than $3.8 billion of expenses” (Klein, 2002, p. 1). Other companies too, such as Tyco, Qwest, and Adelphia Communications, all became involved in accounting- related scandals. These various scandals had a negative impact on public views regarding the accounting profession. As stated in an article in the CPA Letter, the high-profile business failures of Enron and others “called into question the effectiveness of the profession’s self-regulatory process as well as the effectiveness of the audit to uphold the public trust in the capital market” (Landmark accounting reform, 2002, p. 1). Many people began arguing for stricter regulations in the accounting industry. The Securities and Exchange Commission (SEC), for...
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...Wendi Kraus AC 503 Professor John Kuhn Unit #1 Case Study 1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are most responsible for that crisis. There are many responsible for the crisis at Enron. The two main are the top executives at Enron and the auditors at Arthur Andersen. The auditors at Arthur Andersen clearly had a conflict of interest. Andersen earned more form other accounting services from Enron than from auditing services performed. This would certainly lead to the notion that Andersen could and probably did alter the financial reports of Enron to their own benefit. The top executives at Enron were also just as responsible as each of them were profiting from the buying and selling of the company’s stock making huge profits. Both the auditors and the top executives were well aware of the special purpose entities to protect the data that should have been entered on the consolidated financial statements of Enron. The auditors and the top executive should have noticed the problem with the special purpose entities and reported them. Both the auditor and the top executives were profiting from the special purpose entities not being reported on the consolidated financial statements. 2. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate...
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...Audit and Assurance Services Chapter 1 1 Learning Objectives 1. What is auditing? Distinguish between auditing and accounting. Importance of auditing in reducing information risk. 2. Distinguish audit services from other assurance and non-assurance services provided by CPAs. 3. Three main types of audits. 4. How to become a CPA? Identify the primary types of auditors. 2 What is auditing? Evaluating 3 Nature of Auditing Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person. 4 Audit Reporting -- (Expressing Opinions) The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users. 5 Information and Established Criteria To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. 6 Accumulating Evidence and Evaluating Evidence Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria. Transaction data Client inquiry Written and electronic Communications with outsiders Observations 7 Competent, Independent Person The auditor must be qualified...
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...Chapter 2 The CPA Profession Review Questions The four major services that CPAs provide are: 1. Audit and assurance services Assurance services are independent professional services that improve the quality of information for decision makers. Assurance services include attestation services, which are any services in which the CPA firm issues a report that expresses a conclusion about the reliability of an assertion that is the responsibility of another party. The four categories of attestation services are audits of historical financial statements, attestation on the effectiveness of internal control over financial reporting, reviews of historical financial statements, and other attestation services. Accounting and bookkeeping services Accounting services involve preparing the client's financial statements from the client's records. Bookkeeping services include the preparation of the client's journals and ledgers as well as financial statements. Tax services Tax services include preparation of corporate, individual, and estate returns as well as tax planning assistance. Management consulting services These services range from suggestions to improve the client's accounting system to computer installations. 2-1 2. 3. 4. 2-2 The major characteristics of CPA firms that permit them to fulfill their social function competently and independently are: 1. Organizational form A CPA firm exists as a separate entity to avoid an employer-employee relationship with its clients...
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...Assignment on ACT-201 Role of “ICAB” and “ICMAB” in Accounting Development of Bangladesh Submitted for: Netai Kumar Saha Lecturer Dept. of B.B.A East West University Submitted by: Md. Saim Ur Rahman Id: 2013-1-10-130 ACT-201 Sec-04 Submission Date: 29th March, 2015 Plot No-A/2, Main Road, JahuruIslam City Aftabnagar, Dhaka-1212, Bangladesh. ICAB The Institute of Chartered Accountants of Bangladesh (ICAB) is the national professional accountancy body in Bangladesh. It is the sole organization in Bangladesh with the right to award the Chartered Accountant designation. It has around 1,400 members. The Institute of Chartered Accountants of Bangladesh (ICAB) is the National Professional Accounting Body of Bangladesh established under the Bangladesh Chartered Accountants Order 1973 (Presidential Order No. 2 of 1973). Top of Form Bottom of Form Establishment: The Institute of Chartered Accountants of Bangladesh (ICAB) is the National Professional Accounting Body of Bangladesh established under the Bangladesh Chartered Accountants Order 1973 (Presidential Order No. 2 of 1973). ICAB's Administrative Ministry: The Ministry of Commerce, Government of the People's Republic of Bangladesh is the administrative Ministry of ICAB. ICAB's Vision: To meet the ever-changing global economic demands dominated by WTO regime, the ICAB is fast becoming a body of professionals whose expert services will be highly sought after- - To anticipate, meet and exceed the rising...
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...1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe were most responsible for that crisis. Briefly justify each of your choices. In our opinion, we believe that Enron’s top executives- Kenneth Lay, Jeffrey Skilling, Andrew Fastow, and the Andersen auditing firm are mainly responsible for the “crisis of confidence.” As the top executives of the Enron Corporation, Lay, Skilling, and Fastow had obligations to their board of directors and shareholders. These three men managed to find accounting loopholes with the use of special purpose entities (SPEs) to move around assets and profits to mislead their Financial statements. Not only did these men commit illegal and unethical acts, but they also used their positions in the company to convince Enron’s shareholders, board of directors, and their independent audit firm, Andersen, that Enron was functioning excellently. Enron’s first two quarterly financial reports showed great growth, causing the public to be optimistic and trusting of the company’s future. In late 2001, when the actual truth came to light, the public’s confidence in Enron and the accounting profession was broken. Enron’s independent auditing firm, Andersen, should also be held responsible for the Enron scandal. During an SEC investigation of Enron’s financial affairs, Andersen’s Houston office was found guilty of destroying documents...
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...Introduction High-profile accounting scandals of recent decades have seriously undermined the confidence in the capital markets and resulted in unprecedented losses, affecting both large and small investors. Scandals that erupted in the largest U.S. companies as Enron, Tyco and WorldCom, have reduced the overall confidence in the capital market and had a devastating impact on pension assets. As a result, on July 30, 2002, Congress passed the Sarbanes-Oxley Act, creating the radical changes affecting the practice and regulation of accounting and auditing. Evaluation of effectiveness of regulations such as SOX over minimizing the corporate fraud and protecting investors and suggestion for improvement After the scandals, the public was demanding accountability from those who run corporations. It turned out that investors and stakeholders are vulnerable to corporate fraud and highly exposed to the risks of investment losses. Therefore, the Sarbanes-Oxley Act designed to protect the interests of the investing public and reduce their exposure to investment losses as a result of managerial fraud. Act introduced significant legislative changes to existing financial practices and announced a new corporate governance rules. The main objectives of these legislations are protection of investors and shareholders from fraudulent activities of the management as well as building confidence in the financial statements of public companies. The provisions of the Act dramatically changed the relationship...
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