...Auditors and Regulatory Oversight Raquel Avila ACC 403 Auditing Professor Dawn Carter May 8, 2015 The purpose of most businesses is to provide a service or product, and to make a profit while doing so. Businesses have many stakeholders, such as investors, board of directors, and employees. Even customers can be stakeholders if they really enjoy a service or product that they get from that particular business and don’t want them to go out business. Unfortunately, the desire to make a profit can cause some business owners or upper management to act in unethical ways and attempt to circumvent the rules and regulations imposed by the U.S. Securities and Exchange Commission (SEC). The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation (sec.gov). One of the acts enforced by the SEC is the Sarbanes-Oxley Act of 2002 (SOX). This act places strict rules on public companies with regard to the information being reported on the company’s financial statements. Its emphasis is to protect investors and related parties from potential loss by placing the responsibility of providing accurate information on upper management and company officers. This act is also responsible for the creation of the Public Company Accounting Oversight Board (PCAOB), which oversees the activities of the auditing profession. With all of these regulations in place, one would...
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...practice led to higher income and misled investors in 2010 and 2011. Diamond restated its 2012 financial statements. In reviewing the SEC filing of Diamond Foods, Inc., I found that its auditors at first issued an unqualified opinion on its 2012 financial statements. “In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Diamond Foods, Inc. and subsidiaries as of July 31, 2012 and 2011 …” However, due to the discovery of the accounting scandal, the firm subsequently restated its opinion in its 2013 audit report: “Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of July 31, 2013 …” In the company’s restated financial statements of 2012, the company stated that an internal investigation was launched and found sufficient evidence that payments for Walnut was recorded in the wrong period, and quarterly estimates of its walnut cost was also wrong. In addition, the company’s accounts payable and accrued expenses related to the walnut business is also misstated for the previous 2 years. The company performed an extensive review of its invoices and made this determination. It’s important to notice that in 2007, the auditor issued an unqualified opinion, but with an explanatory paragraph, “Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or...
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...Regulatory and Compliance Issues Paper During the late 1990s and early 2000s there were a lot of companies in the USA that were involved with fraudulent activities. These are companies that were trusted by both the public and their investors. Just to mention a few of these companies like Stanford financial, WorldCom, Enron, Tyco and Madoff that intentionally and fraudulently misled their shareholders and the public. The US congress in an effort to curtail the financial scandals, the Sarbanes-Oxley Act was enacted in 2002. The Sarbanes-Oxley (SOX) Act was enacted by the United States congress to protect shareholders and the public from fraudulent accounting practices and errors. The SOX help to regulate, improve standards and also straighten corporate governance. The Sarbanes-Oxley Act facilitated the creation of an oversight company called the Public Company Accounting Oversight Board (PCAOB). “The Public Company Accounting Oversight Board (also known as the PCAOB) is a private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee accounting professionals who provide independent audit reports for publicly traded companies” (http://www.sec.gov). Do you think that the creation and work of the Public Company Accounting Oversight Board (PCAOB) has resulted in greater independence of auditors of public companies? As the SOX help the establishment of the PCAOB, the US congress gave the Security and Exchange Commission (SEC) the explicit oversight authority...
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...conditions for potential risk. The compliance audit should evaluate the effectiveness of the compliance management program, including policies and procedures, training, monitoring and consumer complaint response. A financial institution’s audit committee should determine the scope of an audit and the frequency with which audits are conducted. Examiners are seen questioning institutions about their overall compliance program management and digging into the elements of policies and procedures, training, and quality control assessment. Overlying compliance program management is the role of internal audit. Regulatory guidance and best practices have helped define which elements are necessary to help an organization mitigate risks associated with compliance. Some of the basic elements include: designation of a compliance officer, policies, internal processes and controls, regulatory change management, quality control, consumer complaint response process and audit (Sullivan, 2011). The two elements of assessing the overall effectiveness of a compliance program are quality control and audit. The end goal of a quality control function is to monitor how well departmental policies and procedures are being executed. Ultimately, the function should be risk-based, focusing the most resources on the areas of greatest risk. Completed quality control reviews should be aggregated and reported to the compliance officer for review. The compliance officer should assess appropriate areas for overall...
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...Regulatory and Compliance Issues Paper SANYUY D. ELVIS LAW 531 October 13, 2015 JAMES CHARNELL Regulatory and Compliance Issues Paper Do you think that the creation and work of the Public Company Accounting Oversight Board (PCAOB) has resulted in greater independence of auditors of public companies? Due to some major Corporate and Accounting Scandals in some prominent companies including Enron and WorldCom, Sarbanes–Oxley Act (SOX) was enacted in 2002. Through this, a lot of changes were introduced as to the regulation of Financial Practices and Corporate Governance. The SOX later on created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is to oversee the audits of public companies and other issuers so that the interest of the investors can be protected and also further public interests in the preparation of Independent, accurate and informative audit reports. Therefore, all public companies are required to register with PCAOB and also follow its rules. Independence is one of the rules of the PCAOB. As stated in the PCAOB standards Section 101.01, “A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council”. Furthermore, according to the American Institute of Certified Public Accountants (AICPA), Independence can be defined as a state of mind that permits a member to perform an attest service without being affected by influences that can compromise...
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...Regulatory Bodies Internal Revenue Service is 1of 9 regulatory bodies its purpose is to administer and enforce the Internal Revenue laws. Securities and Exchange Commission the mission of this regulatory body is to protect investors maintain fair orderly and efficient markets and a silicate capital. Financial Accounting Foundation Its mission is to “Establish financial accounting and reporting standards, through an independent and open process, resulting in financial reports that provide decision-useful information. Financial Accounting Standards Board The mission of FASB is “to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. Governmental Accounting Standards Board The mission of the Governmental Accounting Standards Board is to establish and improve standards of state and local governmental accounting and financial reporting that will result in useful information for users of financial reports and guide and educate the public, including issuers, auditors, and users of those financial reports. Federal Accounting Standards Advisory Board The mission of the FASAB is to promulgate federal accounting standards after considering the financial and budgetary information needs of citizens, congressional oversight groups, executive agencies, and the needs of other users of federal financial information. International Accounting Standards Board The...
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...Accounting Regulatory Bodies There are many different types of regulatory bodies to regulate financial accounting and financial reporting. These types of regulators help make financial reports and accounting easier to read and understand. End users to these reports include investors, lenders, etc. The Public Company Accounting Oversight Board (PCAOB) was created to oversee the auditors of public companies to protect the interests of investors and further interest in the preparation of informative, fair, and independent audit reports (Public Company Accounting Oversight Board, 2008). There are standards adopted by the PCAOB and some of these standards are: referencing PCAOB in auditors’ reports, an audit of internal control over financial reporting performed in conjunction with an audit of financial statements, providing audit documentation, reporting if a previously reported material still exists, and compliance with auditing and related professional practice standards (Public Company Accounting Oversight Board, 2008) The Governmental Accounting Standards Board (GASB) is a not-for-profit organization that establishes and improves standards of financial accounting and reporting for state and local governments in the U.S. (Governmental Accounting Standards Board, 2008). Their standards include: useful financial reports, reliable, relevant, and consistent information, unique and distinguishing characteristics of the governmental environment, and improve understanding...
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...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 example, offered some proposals for changes in the industry. In particular, the SEC expressed concern for the idea of increasing the independence of auditors who work with major corporations. To enhance this type of independence, the SEC “proposed rules that limit the length of time key personnel can work on a company’s audit, restrict what outside services auditors can perform for...
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...Regulatory and Compliance Issues Introduction Reviewing the growth of the Sarbanes-Oxley Act (SOX) which was made based on the public business outrages. The WorldCom and The Enron issues, for instance, gave shareholders self-confidence in entities traded on the open markets throughout ’01 and ’02. Congress was very fast to answer to the political disaster and made the bill of the Sarbanes-Oxley Act of 2002, which eventually the bill was signed into edict by President Bush on July 30 to give self-assurance to shareholders (Carmichael, 2004). SOX quickly changed the way in how public business takes internal controls and reporting within accounting and finance and the way the public companies business being administered. One of the most important objectives of SOX is to oversee public accounting, publicity reporting business and the investment commerce. In order to follow SOX objectives and to watch the acts of public accountancy, SOX created the Public Company Accounting Oversight Board (PCAOB). This particular board directs the accounting line of work and publicity reporting business with respect to reporting and audits (Mallor, Barnes, Bowers, & Langvardt, 2014). The Public Company Accounting Oversight Board (PCAOB) members are enforced not to have any associations with the public companies or members of the companies so as to keep all terms of accountability fair and clear. PCAOB also generated rules made to guarantee that auditors of publicity reporting business are autonomous...
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...AMERICAN EXPRESS COMPANY AUDIT AND RISK COMMITTEE CHARTER (as amended and restated as of January 23, 2011) Purpose The Committee is responsible for assisting the Board of Directors in its oversight responsibilities relating to (i) the integrity of the Company’s financial statements and financial reporting process; (ii) internal and external auditing, including the qualifications and independence of the independent registered public accounting firm and the performance of the Company’s internal audit services function; (iii) the integrity of the Company’s systems of internal accounting and financial controls; (iv) legal and regulatory compliance; (v) the assessment and management of the Company’s risk and capital; and (vi) the performance of the other Committee functions set forth in this charter. In discharging its responsibilities, the Committee is not itself responsible for planning or conducting audits or for any determination that the Company’s financial statements and disclosures are complete and accurate or are in accordance with generally accepted accounting principles and applicable rules and regulations. This is the responsibility of the Company’s management and the independent registered public accounting firm. In addition, the Company’s management is responsible for managing its risk function and for reporting on its processes and assessments with respect to the Company’s management of risk. Organization and Certain Responsibilities The Committee shall be comprised...
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...Governance Council translates the elements into mechanisms: • Is the board telling us what is going on? →forming an environment to take risk. • Is the board taking responsibility? →clarifying the role of the board and management. • Is the board doing the right thing? →Meeting information needs of investment communities. 3. What is an SME? SME stands for Small and Medium Enterprises. 4. What processes would you expect to find in a company relating to risk management and compliance processes? • Policy/framework • Board commitment, oversight and review • Accountability • Risk processes: o Risk identification o Risk assessment/measurement o Risk response • Robust appropriate internal control and statutory and regulatory compliance...
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...Abstract This research paper explores the creation of the Sarbanes-Oxley Act (SOX) and the role Enron played in its enactment. Specifically, this paper will explore and discuss the Enron crisis, emphasizing the legal and ethical accounting breaches committed by the company. The purpose of SOX and the methods used to address those breaches. A discussion of the major provisions of the act including: (1) Establishment of the Oversight Board commonly referred to as the Public Company Accounting Oversight Board (PCAOB) (2) Restrictions on non-audit services (3) Rotation of audit partners (4) Auditor reports to audit committees (5) conflicts of interests (6) CEO and CFO certification of annual and quarterly reports and (7) Internal control report and auditor attestation. The necessary requirements concerning internal control for public companies. A discussion of the types of services considered unlawful if provided to a publicly held company by its auditor. A discussion of the broader impact of the act on auditors. Lastly, a discussion from the legal and ethical viewpoint of the level of success the act has had in preventing cases such as Enron. The Sarbanes-Oxley Act and Enron In any contemporary discussion of corporate governance and the erosion of trust in business, one name is unavoidable: Enron. Enron has become an icon for corporate fraud on a massive scale going to the top of the corporate hierarchy. In any attempt to restore trust, two points will have to be acknowledged...
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...Administration Edition 2015/2016 Public Budgeting Essay Abstract The budget is one state’s most important economic policy instrument; as such it reflects its development priorities. The budget controls or regulates its revenues and expenditures over one fiscal year; budgeting process is continuous and circular. In general Kosovo budgets are prepared and presented based on past budgets, modelling future expenditures and revenues on ongoing programmes. Kosovo is still a country that learns from the past experiences on budgeting, controlling and managing the income and outcome of the means that are in disposal of the government. List of abbreviation: AoK Assemble of Kosovo BFC Budget and finance committee COPF Committee of Oversight of Public Finance MoF Ministry of Finance MTEF Medium-Term Expenditure Framework RoP Rules of Procedure Introduction: When preparing the annual budget the MoF issues a so called budget circulars to the institutions or department within the government. This document contains clear instructions for budget preparation with expenditure limits for the next fiscal year, and also provides information about the coordination process between these organizations and MoF. Additionally to the annual budget the government develops financial medium-term planning document, the MTEF seeks to improve the predictability and sustainability of the budget, this document aims to cover the coming fiscal year and estimates of the two coming fiscal...
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...Public Company Accounting Oversight Board Bylaws and Rules – Standards – AS3 AUDITING STANDARD No. 3 – Audit Documentation June 9, 2004 AUDITING AND RELATED PROFESSIONAL PRACTICE STANDARDS Auditing Standard No. 3 – Audit Documentation [Effective pursuant to SEC Release No. 34-50253; File No. PCAOB-2004-05, August 25, 2004] 302 As of February 15, 2005 Public Company Accounting Oversight Board Bylaws and Rules – Standards – AS3 Auditing and Related Professional Practice Standards Auditing Standard No. 3, Audit Documentation [supersedes SAS No. 96, Audit Documentation] Introduction 1. This standard establishes general requirements for documentation the auditor should prepare and retain in connection with engagements conducted pursuant to the standards of the Public Company Accounting Oversight Board ("PCAOB"). Such engagements include an audit of financial statements, an audit of internal control over financial reporting, and a review of interim financial information. This standard does not replace specific documentation requirements of other standards of the PCAOB. Objectives of Audit Documentation 2. Audit documentation is the written record of the basis for the auditor's conclusions that provides the support for the auditor's representations, whether those representations are contained in the auditor's report or otherwise. Audit documentation also facilitates the planning, performance, and supervision of the engagement, and is the basis for the review of the quality...
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...Discuss whether the current international regulatory environment for the auditing profession is robust enough to ensure that the external auditors of listed companies provide reports to owners and investors which are sufficiently independent to serve the public interest. Introduction As we will discover, the topic posed above is a complex one, which has many arguments both in favour and against the stability of the present regulatory environment in ensuring that the audits which auditors produce are indeed impartial enough to satisfy the public interest. We will first proceed in identifying the term “public interest” in light of the accounting and auditing profession. From this will be an explanation of what is the current regulatory environment, which will then lead us to arguments for and against auditors retaining their independence. Relevant sources will be used, including some concerning current thinking on the matter. From this a suitable conclusion can be made. What is meant by “the public interest” in relation to the (accounting and) audit profession? The International Federation of Accountants (IFAC 2010) soundly defines the public interest as any individual or entity which is affected by the work of the accountancy profession: in other words, society as a whole. What is expected of the accountancy profession in relation to the public is the safeguarding of particular interests. These interests may consist of providing accurate financial information, ensuring...
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