...sign-off designed to • ensure that financial reporting exercises full disclosure • Corporate governance is transacted with full transparency. (Sarbanes-Oxley Essential Information) The Sarbanes-Oxley Act implemented new standards for financial reporting accountability in a way that CEOS could not pass on the blame to others. They cannot hide behind the “I was not aware of the company’s financial issues “reason anymore. Executives are now held responsible for any financial misrepresentation in their companies’ reporting. They are also held accountable for the design and implementation of new internal control to validate their financial records. Thus, they are responsible of making sure that an internal control report as well as an internal control assessment report is filed along their financial reporting. The SOX act contains 11 titles that describe specific mandates and requirements for financial reporting. Each title consists of several sections, summarized below. 1. Public Company Accounting Oversight Board (PCAOB) Title I consists of nine sections and establishes the Public Company Accounting Oversight Board, to provide independent...
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...act which required all public companies that have business in the United States to have an accounting framework (Nelson & Stanley, 2011). The Sarbanes-Oxley Act made it mandatory for all public companies to contain internal financial auditing controls and to present the results in annual assessments. The results must be reported to the Securities and Exchange Commission (SEC) on an annual basis. Furthermore, the Sarbanes-Oxley Act of 2002 requires all public companies to have an external auditor. The external auditor will audit the company’s internal control reports of management and their financial statements (Baker, Bealing Jr, Nelson & Stanley, 2011). In this paper, I will analyze the new or enhanced standards for all U. S. public company boards, management, and public accounting firms that the SOX required, examine why the new enhanced standards are necessary and evaluate the benefits and costs of the SOX and evaluate the benefits and costs of SOX. 1. Analyze the new or enhanced standards for all U. S. public company boards, management, and...
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...States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act does not apply to privately held companies. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Harvey Pitt, the 26th chairman of the Securities and Exchange Commission (SEC), led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure II. Events Contributing to the Adoption...
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...2011 1. Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. The Sarbanes Oxley Act, commonly known as SOX, came into existence in 2002, named after Senator Paul Sarbanes and Representative Michael Oxley, in response to the ever increasing instances of financial scandals plaguing publically traded United States-based companies. The purpose of the Act is to “protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws." (SOX-Online.com). Specifically, the act requires a heightened level of accountability from Chief Executive Officers, Chief Financial Officers, the implementation of a Board of Directors, stricter fines and jail time for violations or fraud, closely monitored disclosure of financial documents and data, and the need for independent external auditing. 2. Examine why the new enhanced standards are necessary. The basic concept of why the new enhanced standards are necessary is to hold companies and their executives accountable for their actions and the data they present to investors and securities agencies. The Act specifically addresses 11 areas for control, which are Public Company Accounting Oversight Board (PCAOB); Auditor Independence; Corporate Responsibility; Enhanced Financial Disclosures; Analyst Conflicts of Interest; Commission Resources and Authority; Studies and Reports; Corporate and Criminal Fraud...
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...The significance of the contribution of internal auditors to financial audits was dramatically increased with the passage of the Sarbanes-Oxley Act of 2002. That act made wide-spread changes in the responsibility of the parties involved in the financial reporting process. One change that has enhanced the role of the internal auditor is the requirement in Section 302 of Sarbanes-Oxley that a firm's certifying officers (typically the chief executive officer and chief financial officer) must state that they are responsible for establishing and maintaining internal controls over financial reporting. As part of this certification, they must also indicate that the internal controls were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. These Section 302 certifications are required to be included with the firm's annual financial statements. Most firms will rely extensively on the work of their internal auditors to provide the justification for the Section 302 certifications. Section 404 of the Sarbanes-Oxley act also increased the responsibilities of internal auditors. This section requires that management include, in the firm's annual financial statements, a report on internal controls. The report must indicate that management is responsible for establishing and maintaining internal controls over financial reporting...
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...Instructor: John Mcauliffe Write a three to four (3-4) page report that answers the following: 1. Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. 2. Examine why the new enhanced standards are necessary. 3. Evaluate the benefits and costs of the SOX. 1. Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. Corporate governance becoming increasingly subject to stakeholder scrutiny, compliance to and deployment of a set of financial management standards has become mandatory for the board of directors of most organizations. The Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or SarbOx; July 30, 2002) is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and WorldCom (now MCI). These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes (D–Md.) and Representative Michael G. Oxley (R–Oh.), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0. The legislation is wide ranging and establishes new or enhanced standards for all U.S. public company Boards, Management...
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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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...companies in the United States. This examination of the Sarbanes- Oxley Act of 2002, will address the following: 1.Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. 2.Examine why the new enhanced standards are necessary 3. Evaluate the benefits and cost of the SOX Through research of the Sarbanes-Oxley Act of 2002, the above questions will be addressed. Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. Sarbanes-Oxley Act was enacted following a number of major corporate and accounting scandals involving prominent U.S. companies. Public trust in accounting and reporting practices was in a spiraling decline, SOX was designed to protect investors by improving the accuracy and reliability of corporate disclosures made in accordance with the securities laws. SOX standards must be followed or strict penalties for noncompliance can result. According to the U.S. Attorney General in August 2002 “ the Act provides tough new tools to expose and punish acts of corporate corruption, promote greater accountability by financial auditors , and protect small investors and pension holders. The Department of Justice will play a critical role in implementing the act and in helping...
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...audit report. After much research, we have found the following recent developments in audit report; 1. Key Audit Matters * In the future, effective for audits of financial statements for periods ending on or after 15 December 2016, the auditor’s report of listed entities will include a section on Key Audit Matters (KAM). A new auditing standard, ISA 701, has been issued to give effect to this. KAM is defined as those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements of the current period. 2. Transparency in Audit Procedure * Superior transparency about the audit procedure is very much expected in the auditor’s report. This will effect ISA 700,701 and 720. 3. Addressing disclosures * The revised standard Addressing Disclosures in the Audit of Financial Statements aims to focus auditors more explicitly on disclosures throughout the audit process and drive consistency in auditor behaviour in applying the requirements of the ISAs. 4. Going Concern * The changes in auditing standards require auditors to raise certain going concerns flags in auditor’s report. This will be done if; a) Management uses going concern basis of accounting inappropriately in preparing its financial statements. b) If management did not adequately disclose about material uncertainties. c) Where a material uncertainty exists, which has been adequately disclosed by the entity, the auditor’s report must...
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...02/27/2011 Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. The main purpose of the Sarbanes Oxley Act was to establish an accountable system of regulations and policies to ensure proper compliance. The set of standards and deadlines the act put into place was mainly in response to an alarming amount of corporate and accounting scandals. With hopes of restoring the nation’s faith in its capital market, this government enacted legislation was divided into eleven sections that ranged from additional penalties to the establishment of a new accounting oversight committee, the Public Company Accounting Oversight Board. Overall the new standards made publicly held corporations more liable for their actions or inactions, and even set in place procedures to apply to new legislation. The first tittle of the SOX established the Public Company Accounting Oversight Board (PCAOB), and their purpose was to deliver proper registration of all auditors as well as ensure proper compliance with specific mandates. Part of the first title was also the exact definition of specific processes and procedures that all auditors must adhere to while performing their duties. The board also established policies that emphasized the importance of policing conduct, verifying compliance, and ensuring exceptional quality control. Title two of the SOX deals mainly with the independence of auditors. It sets policies for external...
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...interested parties. Many parties have a stake in the quality of an organization’s corporate governance. In this assignment, I will discuss two principles that surround corporate governance and how they tie into the recent legislation that was introduced to resolve ethical difficulties and changes. The three main parts of an audit will also be described, as well as the role of the audit committee. The oversight and primary responsibilities of the audit committee will be compared and contrasted. I will also attempt to explain the impact on the auditing profession by Sarbanes-Oxley Act. Two Principles Proprietors want disclosures from organization that are correct and empirically provable. Management has the responsibility to provide financial reports in certain incidences on internal control effectiveness. Management always have the key obligation for the correctness and comprehensiveness of an business’s financial statements. They must select which accounting principles best represent the economic material of the business transactions. Management also have the obligation to apply a system of internal control that reassures completeness and correctness in their financial reporting, as well as make sure the financial statements have true and thorough disclosure. The two principles and ethics in corporate governance that I am writing about is 1) transparency and disclosure, and 2) independence and objectivity. Disclosure and transparency are the companions of good governance and vital...
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...Accounting: Accounting Fraud at WorldCom Date: 1/26/2015 3. What are the pressures that lead executives and managers to "cook the books"? The CEO and CFO of WorldCom wanted to “cook the books” because they wanted to keep the company’s stock price growing. Managers and accountants “cook the books” because they are forced to do so by their CEO and CFO. WolrldCom CEO Ebbers believed that increasing the stock price is their number one priority, so he set up a goal for the corporation--“The goal of WorldCom is to be the No.1 stock price on Wall Street”. In the 1990s, WorldCom built their revenues quickly by acquiring other companies. That’s how they do to meet their expected growth. However, when they tried to merger Spring, they were blocked by the Justice Department. When they failed to expand their company by merging other companies, the executive team got lost and not sure how to expand the company in a legal way. As a result, WorldCom’s revenue growth slowed. At the same time, the Dot-com bubble started to burse, so the revenue for the whole telecommunication industry begun to decrease. However, Ebbers wanted to remain the same Expense-to-Revenue Ratio to ensure stock price moving in favorable direction. Which was impossible at that time for WorldCom to fulfill without making the number up. Therefore, the executives decided to “cook the book” to increase the stock price and meet their goal by making the false entries. For the accountant, they are...
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...securities laws in the U.S. since the New Deal. The Sarbanes-Oxley Act of 2002 The Act & Impact The Sarbanes-Oxley Act of 2002 was signed into law following the wake of corporate financial scandals. Many large companies such as Enron, WorldCom, and Arthur Anderson were affected. The Act provides a solid set of government rules that are aimed to discourage and punish corporate and accounting fraud, as well as corruption. SOX is designed to carry out these tasks by imposing severe penalties for wrong doings, while protecting the interest of workers and shareholders. The stated purposed to protect investors is maintained by improving the accuracy and reliability of corporate disclosures, imposing strict rules for audits and auditors of publically traded companies, preventing insider trading and deals, requiring companies to adopt strict internal controls, and increasing the penalties for white collar crimes as they relate to investor fraud. The Sarbanes-Oxley Act of 2002 is often best understood, not as a piece of legislation centered on a new concept of regulation, but as a process which mandated that many major reforms be implemented as soon as possible. SOX became effective on July 30, 2002 as a new penal law, 18 U.S.C. #1348. (Zameeruddin, 2005) This précised...
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...Sarbanes-Oxley Act Accounting I – ACC100 Instructor – Date Analyze the new or enhanced standards for all U.S. public boards, management, and public accounting firms that the SOX required. The Sarbanes-Oxley Act has a new standard for all U.S. public company boards, management, and public accounting firms that the SOX required. The Act sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley has regulated all business records, memoranda, accountants’ audit or review documents, as well as correspondence, including electronic records and e-mails, must be maintained for a minimum of five years after the fiscal period in which they were generated. The Sox Act also ensures the CEO and CFO(chief financial officer) has to certify the correctness of the financial statements and disclosures controlled in the annual report. The CEO and CFO will be personally responsible for any violations. The Sox Act affected more than finances with in a corporation. It was established to define which records in the IT department should be stored and for how long. The Act contains 11 titles or sections which describe the rules that are required to comply with the new law. As far as conformity is concerned the most pertinent sections of the Act is 302, 401, 404, 409, 802 and 906. The Securities and Exchange Commission(SEC) is also responsible for protecting investors, maintain fair, orderly, and...
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...substantial amount of serious deficiencies. Although the PCAOB conducts inspections of the big firms concentrate on problems at highest risk every year, it states that the report may not be truly reveal how frequently a firm’s overall audit work is deficient. Thus more work need to be done to improve the quality of audit services. II. My Reaction to the story with rationale and possible solutions From my perspective, the primary target of the audit today is the verification of financial statements. The audit is an important part of the capital market framework as it not only reduces the cost of information exchange between managers and shareholders but also provides a signaling mechanism to the markets that the information which management is providing is reliable. At the same time, the audit will lose its value when independence which gives credibility to the financial statements is undermined, which is the exact situation in the journal. To promote the independence of external auditors as well as to ensure the quality of audit services, it is significant and profound to establish an audit committee separate from management inside a company. Specifically, the audit committee is responsible for monitoring, overseeing, and evaluating the duties and responsibilities of management, internal and external auditors. Besides, regulatory environment needs to be improved. Following with SAS and SOX, stricter standards should be imposed on audit firms to enhance the quality of external...
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