...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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...7. A perceived lack of integrity caused irreparable damage to both Andersen and Enron. How can you apply the principles learned in this case personally? Generate an example of how involvement in unethical or illegal activities, or even the appearance of such involvement, might adversely affect your career. What are the possible consequences when others question your integrity? What can you do to preserve your reputation throughout your career? A perceived, or even likely more detrimental to one’s career, a proven lack of integrity, can cause damage to a career in many ways. Integrity is an important foundation in client and employee/employer relationships. Integrity equates to placing trust in an individual that he or she will conduct themselves with ethical and moral standards. Studying the damage caused to Andersen and Enron is a good example to conduct oneself with a high standard and not engage in activities at our outside of work which would cause someone to question your integrity as well as the trust relationship. An example of involvement in unethical or illegal activities, or the appearance of involvement which may adversely affect your career, would be participation in gambling. While this activity is legal in some states and venues, this activity could be extrapolated to one’s personality which could go against the moral of integrity of clients or supervisors. Since this is a perceived negative activity, a client or employer might wonder what risks of integrity...
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...IMPORTANT AICPA INFORMATION ON SARBANES-OXLEY |How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession (AICPA) | | | | | | | | | | | | | | | | | | | | ...
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...Abstract The Sarbanes Oxley Act (SOX) has become one of the most important legislative passages since 2002 that has affected the accounting industry. The purpose of this paper is to explore the business practices on Native American Indian reservations and incorporating the Sarbanes Oxley Act (SOX) in to their business administrative policies and procedure plans. The results of this report will provide an initial starting point for chief executive officers and business entreputers on reservations to better understand the importance to incorporate this legislative act so ethical practices can begin to have changes in the business environments. It will further explain that due to the high degree of influence, professionals should follow a strict code of ethics, and I will review the code of ethics established by the Institute of Managerial Accounting. I will use observations, articles, and peer reviewed sources. There is a need for fiduciary educational change that is necessary with respect to how individual employees conduct their business practices that operate on the Indian reservations throughout Indian country. Various Indian organizations operating have experienced an increase of unethical business practices. This changes deals with meeting the challenge of addressing current events and new regulations that need to be established on reservations. In 2010, a report by Sue Woodrow entitled, “Ethics as a building block of economic growth: Global insights...
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...GOVERNANCE 1 CORPORATE GOVERNANCE We can attribute societies demand for improved corporate governance on the number of recent financial scandals that have occurred in both the United States and abroad in the past decade. For many organizations, the way to rebuild shareholder confidence was to implement a fundamental framework of procedures that would ensure scandals like Enron, WorldCom and Tyco would not occur in the future. It is precisely these scandals that made corporate governance the focus of organizations worldwide. Corporate governance is defined as the principles and processes that provide the strategies on how an organization directs and obtains its goals, the oversight process for implementing effective accountability from its directors and managers (Rittenberg, Johnstone, & Gramling, 2012). What are two of the principles that surround corporate governance? How do they tie into the recent legislation that was put into place to resolve ethical challenges and changes within the last decade? Two principles that surround corporate governance include “successful management and ethical corporate culture and independence and objectivity” (Creel, 2013). It is management’s responsibility to create a culture of “integrity and ethical behavior” (Rittenberg, Johnstone, & Gramling, 2012). In addition, it is imperative for board members to maintain their objectivity and their judgment must remain independent and in the best interest of its stakeholders. Corporate governance seemed to...
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...The Impact of Sarbanes-Oxley Act of 2002 on Accounting and Finance Departments Danika Grace Brown Lakeland College Kellett School of Business – BlendEd BA 772 Advanced Industrial Accounting II Instructor Mary Diederich March 10, 2015 Table of Contents Abstract 2 Overview of the Sarbanes-Oxley Act of 2002 3 About SOX 4 Reporting and Compliance 5 Risk Assessment and Control 6 Interview at Company X 7 Standards for Corporations and Officers 8 Auditing and Financial Reporting 9 Future Impact of SOX 10 Conclusion 11 References 13 Abstract Sarbanes-Oxley is the response from Congress in regards to the financial industry collapse that happened over a decade ago. Due to unethical reporting from corporations, Sarbanes-Oxley (SOX) is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. As a result of SOX, top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Furthermore, SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements. This paper will look to provide an oversight of the law and how it pertains to the standards in Accounting and Finance departments nowadays. In addition, this paper will also touch on the ongoing costs and benefits of the now standard...
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...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 reporting and auditing. In the...
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...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 reporting and auditing. In the...
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...Case 8.3: Kansayaku Research online news services to identify recent developments impacting the accounting and auditing profession in Japan. Briefly summarize these developments in a bullet format. There have been recent developments in Japan that have impacted the accounting and auditing profession. Two of these developments are the Kanebo scandal of 2004 and the 2011 fraud scandal at Olympus Corp. The Kanebo scandal of 2004 involved ChuoAoyama PricewaterhouseCoopers, a leading auditor in Japan. It was discovered that ChuoAoyama's monitoring systems failed to show that its employees had been cooking the books for Kanebo for five years. After this scandal was uncovered, the Japanese Financial Service Agency revised auditing standards, the CPA Law and the Financial Instruments and Exchange Law. The FSA also introduced the Internal Control Report and Audit and quarterly financial statement reviews. In addition, the CPAAOB was formed and was to become an independent regulator under the FSA. Further reforms include requiring auditors to rotate client teams every seven years, with a two year interval before they return. Another development was the Olympus Corp. fraud of 2011. Olympus Corp. admitted to hiding large securities losses by using payments to merger advisers and venture capital funds. The two auditing firms that were under investigation were KPMG ASZA and Ernst & Young ShinNihon. With each firm, there was a failure to obtain sufficient, competent...
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...Abstract This paper discusses the role and function of the Public Company Accounting Oversight Board (PCAOB) and Auditing Standard 5 (AS 5). Due to the increased demand for oversight in auditing standards, this paper also examines the impact of Sarbanes-Oxley (SOX) and the reasons for the creation of the PCAOB, as well as the implementation of the rules and regulations. Additionally, this paper examines the impact of AS 5. Keywords: audit, AS 5, financial statements, PCAOB, SEC, SOX Table of Contents Introduction ………….……………………………………………………..……………………4 Scandals ...…..……………………………………...……………………………………………4 PCAOB Mission and Vision …………………… ……………………………………………….5 Structure ………………………….……………..……………………………………………5, 6 PCAOB's Objective….…….……..…………………………………………………………….6, 7 Duties ………………………….…..………………………………………………….……… 7, 8 Standard Setting………..………………………………………………………………..……..…8 Inspection ………………………………………………………………………………………..8 Enforcement…………..………………………………………………………………..……...8, 9 AS5 .…………………….…………………………………………………...…………….…9, 10 Conclusion………………………………………………………………………….....……. 10 References …………………………………………………………………………………….. 11 History of PCAOB …………………………………………………………………… 13-19 Introduction Sarbanes-Oxley (SOX) was passed in 2002 and as a result brought numerous changes to auditing. The Sarbanes-Oxley was passed in direct response to business failures, allegations of corporate improprieties and financial statement restatements. Prior to the SOX passage, auditors used a...
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...serve my own financial interests. Another kind of threat, known as Self-review may be brought about. These are threats that emerge from inspectors inspecting their own particular work or the work done by others in their firm. It might be harder to assess without predisposition one's own particular work, or that of one's firm, than the work of another person or of some other firm. As the auditor has a 3% shareholding in bluebird, a self-review threat may arise if I was to review judgements and decisions I, or others within the firm, have made. Familiarity (or trust) threats are threats that emerge from auditors being impacted by a close association with an auditee. Such a risk is available when auditors are not adequately suspicious of an auditee's declarations and, therefore, too promptly acknowledge an auditee's perspective as a result of their commonality with or confide in the auditee. For instance, this threat may emerge when an auditor has an especially close or long-standing individual or expert association with an auditee. Bluebird limited is one of the firms audit clients and has been for 7 years and with me being the audit...
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...this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge The Sarbanes-Oxley Act of 2002 Section 103 Section 201 Section 203 Section 204 Section 206 Section 301 Section 302 Section 305 Section 401 Title IX PCAOB Auditing Standard No. 5 Paragraph #2 Paragraph #9 Paragraph #11 Paragraph #21-22 Paragraph #25 Paragraph #28-30 Paragraph #69 Paragraph #A5 (in Appendix A) Paragraph #A8 (in Appendix A) III. Case Questions – Answer Key 1. Refer to the second general standard of Generally Accepted Auditing Standards (GAAS). What is auditor independence and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact? The second general standard of generally accepted auditing standards (GAAS) is, “In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.” If the auditor is not independent, the financial statements are considered unaudited for all practical purposes. In case where the SEC has found that a CPA firm was not independent, it has required...
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...decisions regarding their actions. Yet, it appears they ignored their responsibility to the public in order to garner the highest gain. Arthur Andersen LLP Arthur Andersen LLP, with its ninety year history, for a long while stood as one of the most well respected, influential, high-earning, and ethical accounting firms in the world. Yet, with the rise of its consulting services, several apparent oversights, the demise of a number of its clients, and questions of the firms relationships with clients; the company came under attack from investors of its clients, regulators, and courts. Without a valid defense, based simply on its profession and who the company was suppose to defend, Andersen found itself answering tough questions and paying millions of dollars in restitution. The result was that Andersen was forced to cease auditing public companies and to end its long history as a well respected accounting practice. There are several legal and ethical issues surrounding...
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...Enron Case 10.8.2014 Melissa Becker Boya Du Sidi (Fiona) Chen Wei (David) Yu In June of 2001 Enron’s new CEO, Jeff Skilling, was heralded as the “No. 1 CEO in the entire country and Enron was saluted as “America’s most innovated company.” Just six months later, in December, Enron filed for bankruptcy. The failure shocked the public and angered investors. How could this have happened? Did no one see this coming? Where were the accountants? Where were the controls? Enron’s public troubles began on October 16th of 2001 when management released a third quarter earnings report with a “mysterious $1.2 billion dollar reduction.” The following month the company restated earnings for the previous five years and erased $600 million in profits. It turned out that the October report began to reveal Enron’s gross abuse of special-purpose entities (SPEs) and the mark-to-market accounting method. The company used SPEs to keep enormous amounts of losses off its books while inflating earnings from supply contracts by booking all profits from a contract in the quarter the deal was made. What also became clear was that Enron did not accomplish their gross manipulations without the help from their accountant’s at Arthur Andersen. Enron shareholders and executives were not the only groups negatively affected by Enron’s aggressive accounting practices. Arthur Andersen was also unraveled because of the role it played in Enron’s materially misstated financial statements. In a letter to...
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...ethics is primarily a field of applied ethics and is part ofbusiness ethics and human ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics. Accounting introduced by Luca Pacioli, and later expanded by government groups, professional organizations, and independent companies. Ethics are taught in accounting courses at higher education institutions as well as by companies training accountants and auditors. Due to the diverse range of accounting services and recent corporate collapses, attention has been drawn to ethical standards accepted within the accounting profession.[2] These collapses have resulted in a widespread disregard for the reputation of the accounting profession.[3] To combat the criticism and prevent fraudulent accounting, various accounting organizations and governments have developed regulations and remedies for improved ethics among the accounting profession. ------------------------------------------------- Importance of ethics The nature of the work carried out by accountants and auditors requires a high level of ethics. Shareholders, potential shareholders, and other users of the financial statements rely heavily on the yearly financial statements of a company as they can use this information to make an informed decision about investment.[4] They rely on the opinion of the accountants who prepared the statements, as well as the auditors that verified it, to present a true and fair view of the company...
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