...In the wake of economic scandal and the downturn of America’s economy, the Sarbanes-Oxley act and the Dodd-Frank act have attempted to reinforce and uphold the single most important virtue that our capitalist society so desperately depends on, trust. Many of the following names are familiar to us all by now, and for the wrong reasons: Enron, Lehman Brothers, World-Com, and Tyco. So what have SOX and DOD actually accomplished for our capitalist society? What can they actually do to help avert such catastrophic situations in the future? Let us begin with the Sarbanes-Oxley Act. Under the watchful eye of the Securities Exchange Commission the Sarbanes-Oxley act strives to protect the investing public from fraudulent and erroneous accounting practices, in addition to improving the accuracy of public financial statements. The act has transformed the world of accounting by: creating the PCAOB (Title I), increasing an auditor’s independence (Title II), increasing the responsibility/liability of a company’s senior management (Title III), enhanced financial statement disclosure requirements (Title IV), eliminating analyst conflicts of interest (Section V), increasing corporate and criminal fraud accountability (Section VIII), enhancing white–collar crime penalties (Title IX), increasing the responsibility/liability for corporate tax returns (Title X), and increasing the responsibility for corporate fraud and accountability (Title XI). There are several more provisions that comprise...
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...repeating itself. The only question was what to do. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), signed into law by President Barack Obama on July 21, 2010, was the proposed answer. The act was the work of Representative Barney Frank (D-MA), Chairman of the Financial Services Committee and Senator Chris Dodd (D-CT), Chairman of the Senate Banking Committee. The purpose of the legislation is “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes” (The Dodd-Frank Wall Street Reform and Consumer Protection Act, 2012). While the law officially made it easier for whistleblowers to alert authorities to fraud, the law itself can be seen as unprogressive, rather than progressive, or forward thinking. According to the Association of Certified Fraud Examiners, fraud can cost an average company five percent of their annual revenues, which makes the detection of such fraud a priority for all stakeholders (Brink, Lowe & Victoravich, 2013). Prior to the Dodd-Frank Act, employees could only report instances of fraud internally, which triggered an organization to investigate the tip. This could potentially cause a conflict of interest. An advantage of the Dodd-Frank Act was the Whistleblower Rule, which aimed to improve...
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...11-8-2011 Financial Markets & Inst Dodd-Frank Assignment The Dodd Frank Act has been created as a regulatory reaction from the recent financial crisis. The magnitude of its implications and provisions has not been seen since the great depression and will be conducted as a major overhaul to the financial systems rules. Financial regulation within a system that clearly had ulterior motives and lacked market discipline is inevitable. Without clear transparency of what and how borrowers are investing individuals savings will surely lead to moral hazard and conflicting interests. With Dodd Frank hopefully some of this asymmetric information will be largely more apparent to an inspecting investor. This Act aims to promote the financial stability of the United States financial system by implementing rules and regulations to improve accountability and transparency. Dodd Frank mainly addresses issues dealing with ending the "too big to fail" banks, protecting the American taxpayer by ending bailouts, ensuring consumers safety from abusive financial services practices, and for other related purposes. The legislation gives the government more power to step in and "unwind" financial firms that are failing, enables more oversight of the derivatives market, and to protect the individual investor (Bentley). Thanks to Dodd-Frank, we will see whistleblowers offered incentives for reporting compliance violations to a larger and more powerful SEC. The SEC will also have the power to impose...
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...Introduction Credit rating agencies play a key role in todays and the last century’s financial life. Their function is to analyze and then publish country’s and firm’s or basically any financial entity’s/product’s creditworthiness. However, their defining impact on today’s economics is goes way beyond their definition. The Three Big, Moody’s, S&P and Fitch are in possession of 95% market share, that means the competition is negligible. The lack of competition multiplies their individual effect on the markets and raises the question of whether they work with the moral standards today’s stakeholders are expecting from them. (The Role Played by Credit Rating Agencies in the Financial Crisis, Asian Development Bank Institute, 2012) Major investors and creditors are knowingly deciding about their financial moves based on a very narrow and far from comprehensive information. The three bigs ratings are certainly part of these data and they do have major consequences on whether a company will invest in a certain country or on what terms will a bank lend capital to a given enterprise. If we go even further, we can see that credit ratings will have impact on a country’s fiscal and monetary policies, industries’ success or in many case failure, and through that, on people’s everyday life and economic well-being. Now that the concept of ratings are not so abstract, let’s take a look at how they relate to the financial crises. The 2007 credit crisis were caused by the overvaluation...
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...The Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank, signed in 2010, was passed as a response to the US Great Recession of 2007/2008. The primary purpose is the create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and big bonuses, end bailouts and too big to fail, prevent another financial crisis. Key Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act Consumer Protections with Authority and Independence: The Bureau of Consumer Financial Protection has been established to ensure full protection of US consumers with respect to clear and accurate information that they need for mortgages, credit cards and other financial products. This new independent body has...
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...Universidad Central de Bayamón Programa Graduado Administración de Empresas Contabilidad 600 Etica: La Guía de la Vida Trabajo Colaborativo por: Sr. Josue Rodriguez Sr. Miguel A. Saavedra Sra. Zuthbeida Maldonado REFLECCION • Lerma, Joan: "Los cambios sociales y económicos de las sociedades industriales han provocado un alarmante retroceso de los valores éticos: honestidad, solidaridad, sentido del deber, reconocimiento del esfuerzo leal y del trabajo bien hecho.” • Touraine, Alain: "La desorientación del mundo actual parte de la separación entre el mundo técnico, científico y político de la lógica del interior del hombre, de sus valores, de su imaginación.“ • Hesburgh, Theodore: "Es más fácil ejemplarizar las virtudes que enseñarlas. (It is easier to exemplify values than teach them)“ REFLECCION • Demócrito: Es hermoso evitar que otro cometa injusticia, pero si no, también lo es no ser cómplice de la injusticia. • Felipe González Márquez: Al gobernar aprendí a pasar de la ética de los principios a la ética de las responsabilidades. • Confucio: Paga el bien con el bien , pero el mal con justicia STATEMENT OF ETHICAL PROFESSIONAL PRACTICE STATEMENT OF ETHICAL PROFESSIONAL PRACTICE Trasfondo Historico • INSTITUTO DE CONTADORES GERENCIALES: • FUNDADO HACE 90 AÑOS, (DESDE 1919) • POSEE MAS DE 60,000 MIEMBROS • 1983: EMITEN EL PRIMER CODIGO DE ETICA PARA LOS CONTADORES GERENCIALES EN LOS EEUU • HAN CREADO UN CENTRO ETICO CIBERNETICO STATEMENT OF ETHICAL PROFESSIONAL...
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...Q. 1. What were the major factors that led to the recent financial crisis? How did we get here? Answer: One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of: a) Financial innovations that were not backed up with adequate risk controls and management. b) Too much reliance on Quantitative Risk Management ultimately leading to mispricing of risk across different financial and non-financial investments that were the product of the financial innovations made feasible by financial deregulation. c) The influx of liquidity both original and fabricated that led to significant price appreciation particularly in the real estate sector creating real estate bubble. d) The ever increasing prices of assets allowed ever increasing capacity to borrow. e) The sub-prime mortgage market where it was allowed to originate loans of poor credit quality by one player and sell it to others in a mortgage pool. Hence creating an incentive problem where the one who originates poor quality credit did not bear the credit risk for it. f) All these led financial institutions to the fallacy of being “too big to fail”. g) The fallacy that every risk can be quantified and managed led financial institutions into the trap and they started to lend and finance in ways that were unique...
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...implementing government rules that required trades involve intermediaries in public “clearing houses” so that regulators could closely inspect transaction (Lawrence, A. T., & Weber, J., 2014). JPMorgan opposed the idea of trading derivatives in public because it would potentially benefit rivals and compromise the profit of the bank (Lawrence, A. T., & Weber, J., 2014). The objectives of the federal government and JPMorgan do not align. The federal government wants to implement regulations that would work to restructure JPMorgan from being able to take excessive risks that would result in large bailouts being forced onto taxpayers who are already being affected by a destabilized economy. Despite the opposing objectives of JPMorgan, the Dodd Frank Act was implemented as a regulatory financial reform that would make bank’s take accountability by absorbing the losses. (Lawrence, A. T., & Weber, J., 2014). Core values are found in the federal governments actions to enforce regulations so that banks could no longer place big...
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...ROOTS OF A FINANCIAL CRISIS Most companies are currently faced with specific challenges, questions and concerns that are caused by today's uncertain economic environment. In times of market instability, there is an increased potential for management fraud as unexpected losses and financing difficulties create pressure on those who are concerned about the financial performance and solvency of their business. Decisions made in the past due to financial crises are constantly being reconsidered and old certainties questioned. Accounting has been evolving with the development of advancements and setbacks of society. The SEC has to constantly reevaluate their accounting policies due to past events and changes from various economic and financial crises. The complexities and debates that arise from the causes of a financial crisis result in revisions to accounting regulations and standards that seem to be quickly implemented in order to prevent future disasters. THE SECURITIES ACTS OF 1933 AND 1934 The Securities Act was Congress' opening shot in the war on securities fraud with Congress primarily targeting the issuers of securities. Companies which issue securities (issuers) seek to raise money to fund new projects or investments or to expand; thus, companies have an incentive to present the company and its plans in the rosiest light possible. The Securities Act serves the dual purpose of ensuring that issuers selling securities to the public disclose material information to investors...
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...Although there has been other regulations and acts pass since the repeal of the Act of 1933, the ability to restore and strength our dollar has been an uphill battle to take control of it. What was known within our economic system to readjust and rebuilt had not worked to establish balance playing field on the world stage or our domestic economy. As we look forward toward corrective action though the Dodd-Frank Act, Sarbanes-Oxley Act or the Global Legal Settlement of 2002 which reduced the conflict of interest as did the Sarbanes-Oakley Act. These conflicts encompass “underwriting and research in investment banks, auditing and consulting in accounting firms and credit assessment and consulting in credit rating agencies.” (Sanati, 2009) So while we have had a slow and diosmose recovery from this crisis, I will try to answer some of the questions presented to us today on our ability to fully recover and instill some preventative measures to ensure a worst and more devastating financial crisis from taking hold of our economic system. Keywords: Glass-Steagall Act, Bailout, Dodd-Frank Act The Federal Reserve System & Financial Crisis The key factor that protected the banking customers in the United States was repealed in 1988 by than President Bill Clinton; the Glass-Steagall Act of 1933 had placed a firewall between the Commercial banks and the Investment banks. The...
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...The Journey From Deregulation to Regulation - Are We Walking In Circles? Executive Summary This paper attempts to explore the cycle from deregulation to regulation against the backdrop of events from 2001 to 2008, with some reference to later laws such as Dodd-Frank. The context is against the quote from Aristotle that “law is order, and good law is good order”. A Brief history of Deregulation: Regulations have been considered a blessing and a curse since time immemorial. It could be argued, especially with those of a theological mindset, that religions introduced the first forms of regulations. The penalty for deviations were well laid out, and often times had precedent, but exceptions were always sought and loopholes were often explored. Modern economics, regardless of which school of thought is followed, can be compared to a religion1. There are tenets, or commandments. There are different religions, from Keynes, to Marx to Milton. Without extending this analogy, it is relevant to point out that economic theories either rely on governments to participate wholeheartedly in the state of economic affairs by regulating businesses, corporations and industries, or to let the system weed out the weaker in favor of the stronger. In the United States, bitter past experience shaped the regulations surrounding businesses. The Great Depression was the first indicator that the system needed to be made more robust, which in turn led to regulations that formed the base of what our current...
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...(HealthSouth, Lehman Brothers, AIG, Madoff Securities, etc.). These frauds took place which has led to the additional passage of the Dodd- Frank Act in 2010. The passage of SOX and the Dobbs-Frank Act points to the inability of laws and regulations, by themselves, to prevent fraudulent behavior. Do you think “maintaining a culture that emphasizes ethics and compliance” is enough to prevent fraud? Do we need to focus on the dangers of unbridled greed and on inventing fancy investment instruments that few people understand but many people trade since no one wants to be left behind in the often believed unlimited profit potential of the markets? Title II of SOX consists of nine sections that establish standards for external auditor independence. The goal of Title II of SOX is to restrict auditing companies from providing non-audit services (e.g., consulting services) for the same clients in which they audit. In the article “The Case of Phar-Mor Inc.” the author Williams, S. Lansing (2011) presents a case study in hindsight to determine if the 1992 bankruptcy of the deep discount drugstore Phar-Moc Inc who cost its investors 500 million dollars might have been prevented if the Sarbanes-Oxley Act of 2002 (SOX) had been in effect. Do you think that Title II, Section 203, “Audit Partner Rotation” and Title II, Section 206, “Conflicts of Interest” of SOX would have...
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...Running Head: GOVERNMENT REGULATION IN THE ACCOUNTING INDUSTRY Government Regulation in the Accounting Industry Rebecca Gregory Kaplan University Outline Introduction Securities Acts of 1933 and 1934 • Brief History of the Securities Act of 1933 • Objectives of the Securities Act of 1933 • Summary of the Securities Act of 1933 • Necessity of the Securities Act of 1934 • Summary of the Securities Act of 1934 • Peat Marwick Fraud/Scandal The Foreign Corrupt Practices Act of 1977 • Brief History of the Foreign Corrupt Practices Act of 1977 • Summary of the Foreign Corrupt Practices Act of 1977 • Kellogg Brown & Root LLC Fraud/Scandal Sarbanes Oxley Act (SOX) • The Purpose of SOX • Summary of SOX • US Bank of Seattle Fraud/Scandal Conclusion Government Regulation in the Accounting Industry The Great Depression and the Crash of 1929 led the United States into the beginning of new regulations. The first of these regulations was the Securities Act of 1933, which had a goal of prohibiting deceit, misrepresentation, and fraud in the sale of securities. The abusive practices of many banks and Wall Street firms resulted in the creation of the Securities and Exchange Commission (SEC) in 1934. It was established by The Securities Act of 1934 and gave the SEC power to monitor the sale of securities in the U.S. As a result of SEC investigations in the 1970's, it was discovered that many businesses were making payments to foreign officials for the purpose...
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...Whistleblowing and Sarbanes-Oxley Tina-Marie Cole Law, Ethics, and Corporate Governance LEG 500 - Lecture Course Prof. Lisa M. Morris January 20, 2015 Whistleblowing and Sarbanes-Oxley Trinity Industries, or TRN (NYSE), manufactures roadway guardrails, which are a highway public safety feature. In 2005, TRN changed its rail head design saving the company two dollars per rail head but failed to notify the Federal Highway Administration which is required by a federal ruling. The newly designed rail heads that TRN has installed on U.S. roads nationally do not propel the guardrails away from crashing vehicles in head on collisions. The lower cost railheads can send the guard rail slicing through a car potentially injuring passengers unlike there predecessors design that pushed the rail away from the wreck and oncoming traffic. The new railheads known as the ET-Plus model failed five crash tests which were also undisclosed to authorities. Joshua Harman, a competitor to TRN discovered the changed design had gone unreported and sued TRN on behalf of the federal government (Davis & Polcyn, 2014). Joshua Harman stands to make one third of a potentially billion dollars in his law suit (Ivory & Kessler, 2014). As a whistleblower, Joshua Harman is saving potential lives and injuries, fighting back at corporate greed and earning a fortune in the process. A whistleblower exposes all forms of alleged misconduct on behalf of an organization which can...
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...The United States Federal Reserve System was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system (2005). Over time the Federal System has expanded into additional areas to include globalization, technology, innovation, diversity, and ethics. The Federal Reserve System is an organization that should demand more attention. This private organization affects global markets by playing an important role as the reserve currency of the world. Moreover, the Federal Reserve is impacted by the world financial markets. The Federal Reserve affects global markets by setting interest rates, establishing the nation’s monetary policy, and by controlling the printing of U.S. dollars. Interest rates are important to the global economy because it determines the supply and demand of U.S. exports and dollars. Furthermore, changes to the monetary policy affect the value of the dollar on currency markets (2005). Higher interest rates establish the assumption of a strong economy; therefore, the cost of imports is lower and the cost of exports higher. For this reason, market investors pay close attention to data releases and statements by the Federal Reserve in order to adjust to changes to the monetary policy. The Federal Reserve implements its monetary policy through its control over the federal funds rate—the rate at which depository institutions trade balances at the Federal Reserve (2005). Essentially changes to the value...
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