...Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of 2002 U.S. Senator Paul Sarbnes of Maryland and U.S. Representative Michael Oxley of Ohio followed a series of corporate failures, which inacted the SOX Act based on Enron’s bankruptcy and other key organizations such as Worldcom, Tyco, Xerox, and Adelphia who were among the United States organizations executives in the headlines for misdemeanors and multi-billion dollar reassertions," (Dembinski, Lager, Cornford, Bonvin, 2005). The Sarbanes-Oxley Act of 2002, (SOX) was incorporated to strengthen the internal improvements and oversight of corporate control. The primary purpose is to shield and protect shareholders from fradualent activities within the public sector and the stock market. The table below provides a list of a few provisions implemented in SOX Act. Section 302 | Section 401 | Section 404 | Section 409 | Section 802 | Requires that corporate administration confirm that they have assessed the financial reports. | Requires that financial reports include disclosure about any applicable off-balance sheet responsibilities that may exist. | Requires organizations to state whether or not the business's internal mechanism technique are sufficient and operative. | Requires administration to update the public of important budgetary matters when they occur, instead of waiting until the annual or quarterly report. | Imposes penalties for abuses of the SOX rules, which could lead to fines or some jail time. | A description...
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...The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 The Act & Impact ACC 410, Jackie Lewis, Ph.D. Abstract The Sarbanes-Oxley Act, officially named the “Public Company Accounting Reform and Investor Protection Act of 2002”, is recognized to be the most noteworthy U.S. federal disclosure and corporate governance legislation since the Securities Act of1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act). Furthermore, the provisions of the Act are momentous enough that it is considered by many to be the most significant change to the federal 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...
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...Exchange Commission (SEC) has mandated that auditing for organizations must be completed by independent accountants. Today scrutiny of the accounting industry is more intense as laws are created to punish those that choose to falsify information. This paper aims to explain the importance of the Sarbanes-Oxley Act (SOX) as it relates to the internal control, Chief Executive Officers and Chief Financial Officers. We will also identify the pros and cons of the Sarbanes-Oxley Act (SOX) and changes that could be made in order to pose arguments from both sides of the act. Introduction In the early 2000’s, one of the darkest times ever experienced in the history of accounting occurred due to numerous scandals. The results of these scandals from companies lead to terrifying actions, which included the downfall of one of the largest accounting corporations, Arthur Anderson, for their help with Enron. Companies such as Enron, Tyco, and WorldCom have led to the passing of the Sarbanes-Oxley Act (SOX) due to their financial reporting scandals (Forbes, 2013). With the passing of SOX in 2002, the falsification of financial statements by companies became a criminal offense. The passing of the SOX act posed as a challenge to many companies as it enforced businesses to make ethical decisions. If companies fail to comply with this law, they will be accountable for their actions. Prosecution and jail time are some of the punishments put in effect if CEOs and CFOs are found guilty of...
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...Introduction to Sarbanes – Oxley Act of 2002 The Sarbanes – Oxley Act of 2002, also known as the Public company accounting reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron and WorldCom. The Act establishes a new quasi-public authority, the Public Company Accounting oversight Board for overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The Act covers issues such as auditor independence, corporate governance and enhanced financial disclosure. Major Provision of Sarbanes – Oxley Act of 2002 The Sarbanes Oxley Act of 2002 established corporate accountability and civil and criminal penalties for white – collar crimes. This act is a United States federal law passed in response to a number of major corporate and accounting scandals including those effecting Enron, Tyco and WorldCom. These scandals resulted in a decline of public trust in accounting and reporting practices. This Act provides regulatory bodies and courts to take various actions – civil and criminal proceedings in connection of misstatements amounting to accounting scandals and fraudulent financial reports, other frauds on securities matters, obstruction of justice and retaliating against corporate Whistleblowers. The Act also enforce tougher civil and criminal penalties for fraud and accounting...
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...BAC4664 – Internal AuditingSection B01DTrimester 3, 2014/2015 | Internal Auditor and Whistleblowing Policies | Group Assignment | | Prepared by:Gabriella Rena Vanessa Darmadji 1121116458Nur Aida Binti Mohd Jasmin 1121118345 | | | Multimedia University Cyberjaya 2015 | INTRODUCTION Fraud negatively impacts organizations in many ways including financial, reputation, psychological and social implications. According to various surveys, monetary losses from fraud are significant. Thus, the organization has to establish an effective fraud management program that also covers the organization response to the whistleblower in the company. It is clear that corporate have major responsibility in their response of complaints regarding accounting, internal accounting control or audit matters where they have to establish audit procedure for the receipt, retention and treatment of complaints. Moreover, the organization has to build appropriate structure of line of reporting for the internal audit to support the effective fraud management program. The report discuss in deep on the Sarbanes Oxley Act 2002 in relation with bursa listing requirement. Furthermore, the whistleblowing also become the main issues on this report. The thorough discussion about what whistleblowing is and the key characteristics to support good whistleblower hotline also is conferred. REPORT Summary and compare the requirements of section 301.4 of the Sarbanes Oxley Act 2002 and compare those...
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...Company :- Internal control No | Particular | Page no | 1 | Introduction | 1 | 2 | Topic 1 Explanation | 1-2 | | Internal control requirement | | 3 | Topic 2 Explanation | 2-3 | | Internal control requirement | | 4 | Topic 3 Explanation | 3-4 | | Internal control requirement | | 5 | Summary of recommendation | 5 | 6 | conclusion | 6 | case study 2 solution Dear president of LJB Company, * If the LJB Company should decide to become a publicly traded company, a few internal controls should be implemented to comply with the Sarbanes-Oxley Act (SOX). Management will need to provide periodic quarterly reports to evaluate the effectiveness and reliability of LJB’s internal controls over financial reporting procedures. Management should certify the accuracy and fairness of presentation of their financial statements. Independent auditor(s) outside of LJB will need to attest to management’s assessment of said internal controls. Additionally, non-audit services between these two parties (LJB and said independent auditor) are prohibited. * There are a few internal control measures that LJB already has in effect and are better for it: the use of pre-numbered invoices by the accountant and your (the President’s) involvement in the approval and hiring process of new employees. I also recommend the purchase of the indelible ink machine as per the accountant’s request. As this applies to the Internal Control Principle of Physical Control, future check...
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...Auditing 1/26/15 Enron Enron began as Northern Natural Gas in 1932. In 1979 the company reorganized and became InterNorth. InterNorth was in the business of creating energy products such as natural gas and plastics. Later InterNorth merged into what was known as Enron with the new CEO Kenneth Lay running the show. He then began moving the headquarters to Houston, where they began selling off assets to limit their losses initially. The misleading financial accounts began when Jeffrey Skilling wanting to hide their losses. He and Andrew Fastow used special purpose entities to off load liabilities to those company to keep their main business looking as if they were profiting. Which intern made them look as though their business is successful and made their stocks increase because investors saw that the business was profiting not failing. A way that they were able to show the company as profitable was transferring debits and losses to offshore businesses that made it look as though on the books they were profiting and to make those unprofitable parts of the company disappear into an offshore business. To hide their losses in the trading business Skilling used mark-to-market accounting. Mark-to-market accounting is used in the security business but what Skilling did was use it for everyday business. Doing this let them write out what they thought a certain venture would be making in the future, without having to have actually made a dime. This let Enron show on the books...
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...Chapter 1—Auditing and Internal Control TRUE/FALSE 1. Corporate management (including the CEO) must certify monthly and annually their organization’s internal controls over financial reporting. ANS: F PTS: 1 2. Both the SEC and the PCAOB require management to use the COBIT framework for assessing internal control adequacy. ANS: F PTS: 1 3. Both the SEC and the PCAOB require management to use the COSO framework for assessing internal control adequacy. ANS: F PTS: 1 4. A qualified opinion on management’s assessment of internal controls over the financial reporting system necessitates a qualified opinion on the financial statements? ANS: F PTS: 1 5. The same internal control objectives apply to manual and computer-based information systems. ANS: T PTS: 1 6. The external auditor is responsible for establishing and maintaining the internal control system. ANS: F PTS: 1 7. Segregation of duties is an example of an internal control procedure. ANS: T PTS: 1 8. Preventive controls are passive techniques designed to reduce fraud. ANS: T PTS: 1 9. The Sarbanes-Oxley Act requires only that a firm keep good records. ANS: F PTS: 1 10. A key modifying assumption in internal control is that the internal control system is the responsibility of management. ANS: T PTS: 1 11. While the Sarbanes-Oxley Act prohibits auditors from providing non-accounting services to their audit clients, they are not prohibited from performing such services for non-audit clients...
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...Accountants and auditors store information in databases, managed by enterprise systems that have a set of controls to ensure that transactions and record keeping happen as expected. E-business Web sites handle transactions automatically, with the accounting data going directly into the necessary databases. The concept of a paper trail has become a bit of a misnomer; today, because of accounting information systems, there is often no paper involved at all; however, it is important to establish the flow the data in different areas of the organization, or audit trail, so as to properly exercise internal controls. AISs help in this purpose. At the outset of this course, you will learn the basics of accounting information systems and business processes. Next, you will learn about database management systems, and the design of various database models. Finally, you will learn about how to use internal controls effectively for risk management, as well as the requirements for business reporting. After completing this course, you should not only have a clear idea of how accounting information systems work, but you should also be prepared to design and configure them to meet the record-keeping and risk management requirements of the organization. In addition, you will be prepared to design them to meet legal obligations—such as those defined in the United States’ Sarbanes-Oxley Act of 2002—as well as ethical obligations. LEARNING OUTCOMES: A. Develop a conceptual knowledge of the...
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...org/10.4236/ojacct.2013.21003 Published Online January 2013 (http://www.scirp.org/journal/ojacct) Sarbanes-Oxley and the Accounting Profession: Public Interest Implications Sara Ann Reiter1, Paul F. Williams2 2 1 Binghamton University, Binghamton, USA North Carolina State University, Raleigh, USA Email: sreiter@binghamton.edu Received October 31, 2012; revised December 1, 2012; accepted December 12, 2012 ABSTRACT The US accounting profession was caught up in, and some say responsible for, the whirlwind of accounting and business scandals that rocked the US markets in 2002. To restore investor confidence in financial information, the Sarbanes-Oxley Act created a new Public Company Accounting Oversight Board with the authority to set standards for auditors of publicly traded companies, thus ending a century of professional regulation of auditing. In this analysis we employ sociological theories of professionalism [1-4] to help understand the implications of the Sarbanes-Oxley legislation for the accounting profession and for the public interest. We explain why professional self-regulation is important for retaining valuable economic franchises. We also explain why the public interest orientation of the profession is important and how government take-over of auditing standards potentially erodes the public accounting profession’s commitment to the public interest. Self-control over professional work, a key characteristic of professional status, is pre-empted by the newly created...
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...the system used by a client. • Advising on management/human resources hire resources. • Investment broker adviser. • “Expert” Advising not based on audit. 3. For purposes of this question, assume that the excerpts from the Power Report shown in Exhibit 3 provide accurate descriptions of Andersen's involvement in Enron's accounting and financial reporting decisions. Given this assumption, do you believe that Andersen's involvement in those decisions violated any professional standards? If so, list those standards and briefly explain your rationale. Independence. Andersen failed to report accounting/financial statements accurately. Reporting. There were no disclaimer of opinion. Quality Control. No correct supervision. No issues where addressed. There was no “Internal Control Evaluation.” Anderson’s employees failed to research more information on the systems implemented by Enron. 4. Briefly describe the key requirements included in professional auditing standards regarding...
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...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 the act, but those mentioned are the “heavy...
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...INTERNAL CONTROL (Case Study 2) 1. Introduction As President of LJB Company is looking to go public by bringing internal controls system which is as one of the most challenging corporate governance issues because internal control involves everything that controls risks to an organization. Our accounting department has been chosen to evaluate the internal controls of LJB Company. LJB Company is planning to be a publicly traded company in the near future. Our firm needs to evaluate the internal controls To determine where we are on the continuum of internal control compliance, where they need to be and how to close the gaps. One means of assessing readiness is to conduct a “dry run” to detect early warning signs of control deficiencies. A dry run will assess identified financial reporting risks, processes and controls, as well as control designs, against leading practices. We have gathered and provided information of internal control, also arranging the necessary the data into 3 aims of this case study: 2.Background Study LJB Company, a local distributor, has asked your accounting firm to evaluate their system of internal controls because they are planning to go public in the future. The president wants to be aware of any new regulations required of his company if they go public, so he met with a colleague of yours at a local restaurant. The president of the company explained the current system of internal controls to your colleague. Your colleague has...
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...Student ID: 082168461 The impact of the Sarbanes-Oxley Act on Corporate Governance and US Companies An examination to determine the impact of the Sarbanes Oxley Act, the costs and benefits of its implementation and how it has affected Corporate Governance and US Companies. Table Of Contents 1. Abstract...................................................................................................................... 4 1.1 Introduction ................................................................................................. 4 1.2 Methodology................................................................................................ 4 1.3. Limitations .................................................................................................. 5 1.4 Analysis and conclusion .............................................................................. 5 1.5 Further research ........................................................................................... 6 2. Literature Review: An Overview of Corporate Governance ..................................... 6 2.1 United Kingdom ........................................................................................ 14 2.2 Self-regulation prior to SOX ..................................................................... 18 3. Literature Review: The SOX Act ................................................................ 19 3.1 Enron, the trigger to SOX? ....................................
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...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 of obtaining or retaining business with them. Therefore, Congress enacted the Foreign Corrupt Practices Act of 1977 (FCPA) to stop the bribery of foreign...
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