...Sarbanes-Oxley Gabriel Mould ACC561 October 13, 2015 Dr. Janet Forney Sarbanes-Oxley Aspects of the Regulatory Environment In 2001, one of the largest corporate scandals unraveled as Enron/Andersen was accused of corporate fraud. Not long after were companies such as ImClone and Global Crossing were deemed under the same fraudulent activities and congress did very little in correcting the situations. (Larry Bumgardner, 2003) Several committees did hold hearings and a number of bills were introduced to address corporate misconduct. However, the differences between the Senate under Democratic control at the time, and the House of Representatives and White House, under Republican control, on how to address the problems were so great that no legislation appeared imminent. (Larry Bumgardner, 2003) There was a second wave of scandals that involved WorldCom and Adelphia in the summer of 2002. (Larry Bumgardner, 2003) WorldCom had $107 billion in assets but after filing in the Southern District of New York was crushed by their debt of $41 billion. WorldCom’s bankruptcy is the largest in United States history making Enron seem irrelevant. (Beltran, 2002) Three founding members and two other company executives of Adelphia were arrested on charges of looting the nation’s sixth-largest cable-television company on a massive scale. Congress along with the White House began to notice a steady decrease in the stock market which led them to call for action against these scandals...
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...Effects Of The Sarbanes-Oxley Act Of 2002 On Financial Statements ACC/291 10/07/12 It’s inevitable for a company to have down periods when they are not making a profit and sometimes even spending more than they are bringing in. Companies that are publically traded are governed and sanctioned more than sole proprietorships (SP) and Limited Liability Companies (LLC). When the company is a sole proprietorship or a limited liability company government and regulations are basically reviewed and enforced internally. That’s a privileged that these types of organizations have. Owners may sometime not handle finances appropriately or may not have checks and balances in place from any outside sources to make sure everything is handled correctly. Organizations of any other sort than SP’s and LLC’s are under the scrutiny of The Sarbanes Oxley Act. Sarbanes-Oxley Act of 2002 was basically established to deal with unethical behavior and corporate social responsibility issues. This law was established to enforce accounting auditing and to protect investors. Companies like Enron and WorldCom scandals made it imperative for Congress to pass such a law to protect Investors, Corporation Employees, etc. This Act was not favored by a lot of organizations. Companies had to create procedures to meet what SOX require and it’s compliance. Procedures were required to be established to enforce the checks and balances...
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...The Impact of the Sarbanes-Oxley Act on Corporate America In discussing the impact of one of the most important laws passed in Congress to legislate the accounting and reporting rules of corporations, I need to give a brief definition and some background information for the Sarbanes-Oxley Act. In 2002, the Sarbanes-Oxley Act was passed into law by the United States Congress. After a series of high profile corporate scandals, such as Enron and WorldCom, the Congress of the United States passed this legislation “to improve and maintain investor confidence. The law requires companies to have more independent board directors (not just company insiders), to adhere strictly to accounting rules, and to have senior managers personally sign off on financial results.” (Bateman, 173). Before the fall of corporations like Enron and WorldCom, there was also far too much corporate fraud during the Internet bubble. According to Stanley Block and his co-authors, “The major accounting firms had failed to detect fraud in their accounting audits, and outside directors were often not provided with the kind of information that would allow them to detect fraud and mismanagement.” (Block, 12). What is the definition, in a nutshell, of the Sabarnes-Oxley Act? This is something that needs to be defined and understood before examining the positive and negative impacts of this law upon corporate America. The Sarbanes-Oxley Act “establishes strict accounting and reporting rules in order to make senior...
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...The Sarbanes-Oxley Act of 2002 has been called by many the “most significant securities legislation” since the Securities Acts of 1933 and 1994 were passed (Arens, 2011). The acts sent sweeping change across all publicly held companies and their audit firms. In fact, the most sweeping and detested part of it all was Section 404, which requires “the auditor of a public company to attest to management’s report on the effectiveness of internal control of financial reporting” (Arens, 2011). While this may not sound like much to someone unfamiliar with financial reporting, the effects were unimaginable for those who were responsible for the financial reports of a company, but a huge sigh of relief for those that had the most to lose at the hands of fraud and illegal activity. Sarbanes-Oxley wasn’t something set into motion for little reason. The emerging scandals of huge corporations such as Enron, Tyco, ImClone, WorldCom, and others in the early years of the 21st century prompted Congress to pass the much needed reform (Bumgardner, 2003). It was something that could have prevented the decline of the stock market, at least at that time, had it already been in place. It was the little things in business, like independence, and the requirement that management attest to their financial statements, that many an outside person took for granted and assumed was taking place within the business they invested in, only to find their worst nightmares were taking place. The Sarbanes-Oxley act...
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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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...culture of fraud and deceit inside corporate America that had been hurting the average investor. After uncovering these scandals Congress wanted to take immediate action. It passed the Sarbanes – Oxley Act (SOX) shortly after in an attempt restore faith in the country’s capital markets. Between 2000 and 2002 there appeared to be a new, large fraud every few months being covered in the news. Investors were drawing their money out of the markets and some of the largest corporations in America were going bankrupt. Congress quickly looked for answers as to how this could happen and discovered a myriad of factors. Many factors combined to create a culture where small changes to the financials were overlooked and over time those small changes accumulated into larger changes, and bigger issues. Eventually the once small changes became too large to ignore any longer and resulted in collapse. One major factor uncovered by Congress was the effect of auditor conflicts of interest might be having on auditor independence. Auditors were performing tax, consulting and attestation services, to name a few, in addition to the audit. Often time the fee from the other services was greater than their audit fee. The auditor had a conflict of interest in keeping the large client, and its enormous fees, or reporting crooked financials and losing a large account. Congress took notice of the...
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...examples fraud in the modern era, I will try and unravel the details of who the beneficiaries were, what they had to gain for their actions, the consequences of their actions and what has been done to prevent such an occurrence in the future and how it has revolutionized the financial reporting standards. There is no greater example of fraud than that of the Enron scenario which occurred in October of 2001. Enron was once one of the energy giants in the world and was deemed ‘too big to fail’. Enron was once very successful and provided thousands of jobs, however, due to a few key executives who driven my their own greed, the company collapsed, causing many people to lose a lot of their money and for many of them their life savings. There came a point in time when Enron began struggling to generate profit and cash flow from the regular business transactions. The company launched many projects which became write-offs and Enron found themselves a massive debt pit. Due to the greed of a few key executives namely Jeff Skilling, Ken Lay, Andy Fastow and the Public Accounting Firm Arthur Anderson, the company covered up their losses and poor balance sheet position by falsifying the financial statements and declaring nonexistent revenues. They did this to protect their initial reputation personal wealth. Andy Fastow created a very smart, yet unsustainable plan. He covered up the fact that the Enron was in $30 billion...
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...Economic Consequences of the Sarbanes-Oxley Act of 2002 Ivy Xiying Zhang* William E. Simon Graduate School of Business Administration Carol Simon Hall 4-312 University of Rochester Rochester, NY 14627 zhangxi@simon.rochester.edu February 2005 I am grateful for the guidance of my dissertation committee, Bill Schwert, Charles Wasley, Ross Watts, and especially Jerry Zimmerman (Chairman). I also appreciate comments from Jim Brickley, Philip Joos, Andy Leone, Jerry Warner, Joanna Wu, Yan Cao, Ling Lei, Laura Liu, Tao Kuang, and workshop participants at the University of Rochester. All errors are my own. * Abstract This paper investigates the economic consequences of the Sarbanes-Oxley Act through a study of market reactions to legislative events related to the Act. I find that the cumulative abnormal return around all legislative events leading to the passage of the Act is significantly negative. The loss in total market value around the most significant rulemaking events amounts to $1.4 trillion. I then examine the private benefits and costs of major provisions of the Act by investigating the cross-sectional variation in market reactions to the rulemaking events. Regression results are consistent with the hypothesis that shareholders consider both the restriction of nonaudit services and the provisions to enhance corporate governance costly to business. The results also show that Section 404 of SOX, which mandates an internal control test, imposes significant costs on...
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...The Internal control management strategies Prepared for: LJB Company Prepared by: Chibuzor E. Edeh Devry University ACCT 540: Financial Accounting TABLE OF CONTENT Introduction ----------------------------------------------------------------------------------------------------------3 Internal control regulations for public companies -----------------------------------------------------------3-4 LJB’S good internal control measures -------------------------------------------------------------------------4 Recommendations for Indelible ink --------------------------------------------------------------------------4 LJB’S poor internal control measures ------------------------------------------------------------------------5-6 Recommendations for improvement --------------------------------------------------------------------------5-6 Summary --------------------------------------------------------------------------------------------------------7 References ------------------------------------------------------------------------------------------------------- 7 INTRODUCTION Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. Internal control is very important because it discourages employees from fraudulent activities...
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...which all of the client’s funds were not invested in common stock, then Madoff told the clients the money was invested in money market accounts or government issued securities (Lewis, 2013). However, Madoff was not actually investing the client’s funds, but instead placed the money in his bank account. Madoff gave the client’s funds to friends, family, and those who aided Madoff in his fraudulent scheme (Lewis, 2013). Madoff boosted his character in the public eye, by giving money to charities (Rittenberg, Johnstone, Gramling, & Knapp, 2012). The regulatory oversight that was in place, while Madoff’s Ponzi scheme was operating was the Securities Exchange Commission, the SEC. Also, the Sarbanes Oxley Act of 2002, which Congress passed. The purpose of the Sarbanes Oxley Act is to protect shareholders and the general public from...
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...structure of its markets, regulations which helped Andersen to grow along with its reputation. The second category is strategy which includes Andersen’s primary goals, choice of business, and services. Finally, the last category is organizational architecture which explains how authority is distributed among Andersen’s employees, and how rewards determined. BUSINESS ENVIRONMENT TECHNOLOGY | MARKETS | REGULATIONS | Company started using computers for bookkeeping.Company developed the largest technology practice. | Arthur Andersen was well respected, reputable auditing company for many customers.Early 1950s Andersen entered in computer consulting business. | The federal law in 1930’s which required companies to provide their financial statements to an independent auditor each year helped Andersen’s grow. | STRATEGY Quality audits were valued more than higher short-run firm profits.“Four cornerstones” of good service, quality audits, well managed staff and profits.Auditors were rewarded and promoted for making sound audit decisions. Mid-level partner was making average $160,000 in today’s currency.In 1990s AA formulated a new strategy that focused on generating new business and cutting costs. It included how partners should empathize with clients. | ORANIZATIONAL ARCHITECTURE AA’s both business (auditing and consulting) had significant decision rights over its business. New “2X” performance evaluation...
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...cause this crisis, there was never a clear path on how to reverse the demand that was cause by repealing the Glass-Steagall Act of 1933. 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...
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...THE LEGAL REGULATION OF THE EXTERNAL COMPANY AUDITOR IN POST-ENRON SOUTH AFRICA Hannine Drake THESIS PRESENTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS AT THE UNIVERSITY OF STELLENBOSCH Supervisor: Prof A.H. van Wyk March 2009 ii DECLARATION By submitting this thesis electronically, I declare that the entirety of the work contained therein is my own, original work, that I am the owner of the copyright thereof (unless to the extent explicitly otherwise stated) and that I have not previously in its entirety or in part submitted it for obtaining any qualification. Date: 25 February 2009 Copyright © 2009 Stellenbosch University All rights reserved iii ACKNOWLEDGEMENTS In acknowledgement to all who have contributed to this work in some form: writing this thesis would have otherwise been like swimming through mud. To my supervisor, Professor Andreas van Wyk, thank you for your leadership, patience, and academic skill in guiding me through the research process. To Adéle Mulder and Charl Marais, thank you for your continuous insight and perspectives, both academic and otherwise. And finally to Hilda and Gerrie Steyn, who have been absolutely crucial throughout all my years of study, thank you for your indispensable support, in all its forms. iv SUMMARY The worldwide increase of corporate failures on the scale of Enron and WorldCom has sparked a renewed international trend of corporate governance review...
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...Overview of the SEC Primitive economies are basically barter economies (goods and services traded for other goods and services), while in other mature economies, businesses are organized into proprietorships, partnerships, and joint venture. These types of closely held businesses, in which owners manage their own business, do not need external reporting of the results of operations. However, external reports have become essential with the increase in the size and number of business enterprises, along with the increased amount of people investing capital resources in these businesses. The corporate form of business also increases the need for objective verification of data and creates a need for disclosure of more and better information to owners and potential investors. Furthermore, the increase in value, size and activity of capital exchange in security market also increases the opening of taking advantage in lax conditions and to profit by misrepresentation and manipulation. Hence, the main reason for establishing the securities legislation was because large security market requires operating procedures that would protect investors from fraud and guarantee an adequate supply of capital for economic growth. Background of the SEC The Securities and Exchange Commission (“SEC”) is one of several public and private sector rule-making organizations that have an effect on financial reporting for businesses. It plays a crucial role in the development...
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...profession was then merely a matter of time. Management Controls Operations and Communications Management has control over the accounting systems and internal controls of the enterprises that auditors audit. Management is not only responsible for the financial and internal control reports to investors, but also has the authority to determine the precise nature of the representations that go into those reports. However, management can scarcely be expected to take an impartial view of this process. Communications to Stakeholders – the Financial Statements The financial statements measure the financial and non-financial performance and financial position of the organization that management manages. Internal controls determine what and how management objectives are met. They have an important influence on...
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