...restore confidence in the securities market and to provide reliable and accurate information for investors. The Sarbanes Oxley Act of 2002 was a large stepping stone in that movement and has impacted many public companies. SOX requires public companies registered with the Securities Exchange Commission to evaluate the effectiveness of its internal control over financial reporting and disclose this information in its financial statements. For instance, Dell Inc., a large multinational IT corporation, was one of the many large corporations affected by the implications of SOX. First, Section 404 of SOX requires Dell’s management, under the supervision of the CEO and CFO, to establish and maintain adequate internal control in accordance with the rules defined in the Securities Exchange Act. In addition to establishing the controls, they are also required to evaluate the effectiveness of the controls against the criteria established in the Internal Control-Integrated Framework issued by COSO. Second, Section 409 of SOX requires management to disclose material changes in internal control, and the results or potential effects of those changes. Finally, Section 404 of SOX requires Dell’s auditing firm to evaluate management’s assessment of Dell’s internal control and to issue an opinion on the quality and accuracy of the assessment. All in all, SOX raised corporate responsibility to assess and improve internal control over financial reporting. It also...
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...structure and procedures for financial reporting. The internal control report must also contain an assessment of the effectiveness of the internal control structure and procedures of the issuer for financial reporting. These rules are referred to as and contained in Section 404 of the Sarbanes Oxley Act (“SOX”). This paper will touch upon an introduction to the SOX Act,...
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...Section 404 of Sarbanes-Oxley Act Introduction Before 2002, many U.S. companies, such as Enron, WorldCom and Xerox went bankrupt and caused the serious global issues and financial responsibilities of managers in the world. The primary issue was about an ethical leadership and maintained the clean audit system. Well known examples perhaps were Enron and WorldCom scandals. Dyck and Neubert (2010) mentioned that “Ironically, the lucrative rewards for performance and innovation were keys to Enron’s early success and growth, before excesses in pursuit of these goals contributed to the ethical failures that ultimately destroyed the company. ” (p. 151). According to Dyck and Neubert (2010), both Ebbers as C.E.O of WolrdCom and Skilling as C.E.O of Enron went to a prison for their unethical behavior within their organizational structure caused (p. 449). According to Noreen and colleagues’ (2008), these scandals were involved at the highest level to the former C.E.O including the misuse company money and fraud financial reports (p. 25). In particular, Sadka (2006) indicated that in the case of WorldCom, its financial fraud includes mispricing of its products (p. 439) Moreover, due to WorldCom’s financial fraud, investors of WorldCom’s competitors lose $7.8 billion with additional losses of $49 billion social welfare (p. 463). That is to say, the bankruptcy of one of the biggest company caused a lot of problems in the U.S. As a result, not only investors lost billions of dollars but...
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... Page 2 President George W. Bush signed the Sarbanes Oxley Act into law on July 30, 2002. This law set new and enhanced standards for public companies and the boards, management and accounting firms. The Sarbanes Oxley Act also brought about considerable changes to the financial reporting and auditing practices of public companies. The act holds top executives for these companies personally responsible for the financial data and its timeliness, with non-compliance having criminal consequences. There are several ways to measure the effectiveness of SOX because effectiveness can mean different things to different people depending on their opinions on what will mean the law is actually working. The first and easiest way one might determine effectiveness is by the amount of fraud that companies have done that have actually been recovered. This determinate will never actually have a true answer because what company will openly admit that yes we have committed fraud but we have not been caught yet knowing the punishments for the crime. Since this is not plausible another way to measure effectiveness is to get feedback on its effectiveness by people who are affected by the act. The second way is measuring the investors’ confidence. Using a study by Engebretson & Meier, who question random people who were affected by SOX to measure...
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...The Sarbanes-Oxley Act of 2002 Abstract This paper addresses financial analysis standards legislated in the Sarbanes-Oxley Act of 2002 (SOX). The focus will be on how the legislation enhanced the role of auditing and auditing firms, the impact of whistleblower legislation, and the recent Supreme Court decision. The paper attempts to show that though there continues to be opposition to SOX’s financial reform legislation, there is a case to be made in support of SOX. The research relies on historical data, such as the Enron scandal, and the recent decision by the United States Supreme Court decision that deems SOX as constitutional, to support that legislation is a necessary requirement in today’s global corporate environment, in which some of the largest corporations have proven that, left to their own devices, they will gravitate toward corporate malfeasance. The Sarbanes-Oxley Act of 2002: WorldCom. Enron. Adelphia. Global Crossing. What do all these companies have in common? They will always be synonymous with the following: financial fraud, corporate malfeasance, internal corruption, and the reason behind the passage of the Sarbanes-Oxley Act of 2002 (SOX). Not since the Crash of 1929 and the subsequent passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 (Bumgardner, 2003, para. 2), had the country seen such a push for financial reform. Triggered by investigations into corporate fraud by some of the largest and most successful corporations...
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...The Sarbanes-Oxley Act 2002 - In the US, corporate governance is determined predominantly by legislation in the form of the Sarbanes-Oxley Act of 2002 ("SOX") and detailed regulations which SOX required the Securities and Exchange Commission ("SEC"), New York Stock Exchange ("NYSE") and NASDAQ to draw up. -What is The Sarbanes-Oxley Act 2002?It is a U.S federal law that set new or enhanced standards for all U.S public company boards, management and public accounting firms. - It established a series of requirements that affect corporate governance in the U.S. and influenced similar laws in many other countries - The Sarbanes-Oxley Act of 2002 is mandatory. ALL organizations, large and small, MUST comply - Historically, Sarbanes-Oxley (SOX) was passed to combat corruption at big public companies like Enron, WorldCom, Tyco, Adelphia, Global TelLink, HealthSouth, and Arthur Andersen. But small and not-for-profit companies are finding they have no choice but to adopt many of the same standards if they want to get insurance, attract investors and donors, and repel lawsuits. The law has five main objectives : 1) To strengthen the independence of auditing firms. 2) To improve the quality and transparency of financial statements and corporate disclosure. 3) To enhance corporate governance 4) To improve the objectivity of research 5) To strengthen the enforcement of the federal securities laws, including the use of criminal penalties. Major element in SOX - A new regulatory...
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...Adoption of the Sarbanes-Oxley Act of 2002 ACC 100. Accounting Professor Hiotellis June 4, 2011 New Standards for U.S. Public Companies The Sarbanes-Oxley Act imposed a series of “enhanced” standards on publicly traded companies intended to ensure financial reports were being reported accurately to the public. Among others, these enhanced standards include: • Companies must maintain adequate controls over financial reporting. • Companies must provide a statement regarding the method the company uses for evaluating their control over financial reporting controls. • Companies must disclose any material weaknesses in their accounting controls. • Auditors must issue an attestation regarding the managements own assessment of its financial reporting capabilities. Why the new enhanced standards are necessary Congress passed the Sarbanes-Oxley Act of 2002 in reaction to accounting scandals involving well-known companies like Enron, WorldCom, and Tyco that were inaccurately reporting financial information over a period of years. Through close relationships with accounting firms that amounted to conflicts of interest, these companies were able to perpetuate their fraudulent financial reporting. One noted accounting firm – Arthur Anderson – was forced to shut down because of the scandal, though several other accounting firms were also implicated. The story of Enron’s demise and the financial fraud that lead to it is perhaps the most well-known...
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...Research Paper Abstract The Sarbanes-Oxley Act of 2002 (SOX) was enacted into law in 2002 in the wake of corporation financial reporting scandals involving large publicly held companies. SOX instituted new strict financial regulations with the intent of improving accounting practices and protecting investors from corporate misconduct. SOX requires corporate executives to vouch for the accuracy of financial statements, and to institute and monitor effective internal controls over financial reporting. The cost of implementing an effective internal control structure are onerous, and SOX inflicts opportunity costs upon an enterprise as executives have become more risk adverse due to fears of incrimination. The Public Company Accounting Oversight Board (PCAOB) was created by SOX to oversee the accounting process and dictate independence requirements for auditors and auditing committees. The PCAOB proposed regulations must be approved by the SEC before they are enacted. Since the passage of SOX, the IT department has become critical in designing and implementing the internal controls in company accounting information systems. The Information Technology Governance Institute (ITGI) created a framework called Control Objectives for Information and Related Technology (COBIT) to provide guidance for companies to implement and monitor IT governance. Accounting Information Systems Research Paper The Sarbanes-Oxley Act of 2002 changed the landscape of corporate financial...
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...Research Paper Abstract The Sarbanes-Oxley Act of 2002 (SOX) was enacted into law in 2002 in the wake of corporation financial reporting scandals involving large publicly held companies. SOX instituted new strict financial regulations with the intent of improving accounting practices and protecting investors from corporate misconduct. SOX requires corporate executives to vouch for the accuracy of financial statements, and to institute and monitor effective internal controls over financial reporting. The cost of implementing an effective internal control structure are onerous, and SOX inflicts opportunity costs upon an enterprise as executives have become more risk adverse due to fears of incrimination. The Public Company Accounting Oversight Board (PCAOB) was created by SOX to oversee the accounting process and dictate independence requirements for auditors and auditing committees. The PCAOB proposed regulations must be approved by the SEC before they are enacted. Since the passage of SOX, the IT department has become critical in designing and implementing the internal controls in company accounting information systems. The Information Technology Governance Institute (ITGI) created a framework called Control Objectives for Information and Related Technology (COBIT) to provide guidance for companies to implement and monitor IT governance. Accounting Information Systems Research Paper The Sarbanes-Oxley Act of 2002 changed the landscape of corporate financial...
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...The Sarbanes-Oxley Act of 2002, sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley, represents the biggest change to federal securities laws in decades. Effective in 2006, all publicly-traded companies are required to submit an annual report of the effectiveness of their internal accounting controls to the SEC. It came as a result of the large corporate financial scandals involving Enron, WorldCom, Global Crossing and Arthur Andersen. Provisions of the Sarbanes Oxley Act (SOX) detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. It affects public U.S. companies and non-U.S. companies with a U.S. presence. SOX is all about corporate governance and financial disclosure. High-profile business failures culminating in a media fixation on Enron called into question the effectiveness of business’ self-regulatory process as well as the effectiveness of the audit to uphold public trust in capital markets. Legislation to address shortcomings in financial reporting was slowly progressing in Congress. The sudden collapse of WorldCom guaranteed swift congressional action. President Bush signed the Sarbanes-Oxley Act in to Law on July 22, 2002. The most significant legislation affecting the accounting profession since 1933. Developing meaningful reforms that protect the public interest and restore confidence in the accounting profession is the primary focus of the SOX legislation. The SEC...
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...Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation enacted in response to the high-profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. The act is administered by the Securities and Exchange Commission (SEC), which sets deadlines for compliance and publishes rules on requirements. Sarbanes-Oxley is not a set of business practices and does not specify how a business should store records; rather, it defines which records are to be stored and for how long. The legislation not only affects the financial side of corporations, it also affects the IT departments whose job it is to store a corporation's electronic records. The Sarbanes-Oxley Act states that all business records, including electronic records and electronic messages, must be saved for "not less than five years." The consequences for non-compliance are fines, imprisonment, or both. IT departments are increasingly faced with the challenge of creating and maintaining a corporate records archive in a cost-effective fashion that satisfies the requirements put forth by the legislation. Section 404 of Sarbanes-Oxley In consequence, Search Financial Security (2009) shows the Section 404 of SOX mandates that all publicly traded companies must establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness. The purpose...
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...Sarbanes-Oxley Act (SOX) of 2002 Topics Covered: How SOX affects the following: CEO’s and CFO’s of Public Companies Outside Independent Audit Firms SOX section 404 on Internal Control The Main Advantages and Disadvantages of SOX Executive Summary The Sarbanes-Oxley Act of 2002 (SOX) was intended to create more transparency in financial reporting and to combat the perceived inflation of CEO compensation. To do this, the act required that a board of directors be financially independent from the CEO and have no familial ties. It also required the CEO and CFO to personally sign all quarterly and annual reports submitted to the SEC and provided for criminal penalties if this was not done. Our research indicates that Sarbanes-Oxley has created more transparency in the system, but it has actually had the opposite effect than was intended with regards to CEO compensation. The research indicates that CEO compensation has increased for many companies post-Sarbanes-Oxley. Due in large part to the Enron scandal, SOX needed to address outside independent audit firms to improve the accuracy of financial reports disclosed by publicly traded companies. These financial reports are used by investors, bankers and interested consumers to determine how well an organization is doing and provide investors with vital information about a company’s performance. This paper will discuss the Sarbanes-Oxley Act and how the SOX law affects outside independent audit firms. Next we review...
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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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...Suretta Smith ACC/491 Generally Accepted Auditing Standards Paper September 25, 2012 Instructor: Santos Alarcon, Jr. Abstract The purpose of this paper will be to describe the nature and functions of auditing. The following will be addressed in this paper: description of the elements of the Generally Accepted Auditing Standards (GAAS), description how these standards apply to financial, operational, and compliance audits, explanation of the effect that the Sarbanes-Oxley Act of 2002, and the Public Company Accounting Oversight Board (PCAOB), will have on audits of publicly traded companies and the discussion on the additional requirements that are placed on auditors from this Act, and the actions of the PCAOB. The generally accepted auditing standards (GAAS) were implemented by the Public Company Accounting Oversight Board (PCAOB), in April of 2003. The standards were also adopted by the Auditing Standards Board of the American Institute of Certified Public Accountants, which consists of ten standards that establishes the framework for conducting audits. However, the auditing standards are not detailed but guidance on what should be included in the financial statements (Boynton & Johnson, 2006). The GAAS consist of three categories that incorporate the ten standards which are general standards, standards of field work, and standards of reporting. General standards. under the general standards category, it informs about the characteristics of adequate...
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...A Review and Analysis of the Sarbanes-Oxley Act Megan Allen Jason Pratt Mike Sogunro LaShaunda Person University of Maryland University College This paper was prepared for AMBA 630, taught by Professor Little and Professor Riley Introduction The Sarbanes-Oxley Act of 2002 was signed into law to protect investors by mandating processes that improved the accuracy and trustworthiness of corporate disclosures made pursuant to the securities laws, and for other purposes. The law was also enacted in response to several major corporate and accounting scandals; two of the most infamous cases are Enron and WorldCom. This research paper will focus on the analysis of four issues and discuss how the Sarbanes-Oxley Act affected the following subjects: A. 1. Audit committees of public company board of directors responsibilities since SOX 2. Sarbanes-Oxley section 404 on internal control 3. The accuracy of public company financial statements and the cost of capital for public companies 4. The main advantages and disadvantages of Sarbanes-Oxley Act B. Can legislation guarantee the accuracy of public company financial statements? Why have previous laws failed? Why CEOs and CFOs are paying so much attention to this law? Audit Committees of Public Company Board of Directors Responsibilities since Sarbanes-Oxley Act Since its enactment, the Sarbanes-Oxley Act (SOX) has significantly increased the authority and responsibilities of audit committees and the board of directors...
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