...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 labored long and hard to communicate to the media, the public and to CPAs (Certified Public Accountant) that it will not tolerate any substandard work that veers away from the fundamental code of ethics and responsibilities that have...
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...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 firms. 1. Introduction In response to the collapse of a number of high-profile firms since late 2001, Congress passed the Sarbanes-Oxley Act (the Act or SOX hereafter) in July 2002 to enhance corporate governance and thereby restore public confidence. The Act has introduced significant changes in both management’s reporting responsibilities and the scope and nature of the responsibilities...
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...SOX effect on DCAA Christy Taylor AC 503 July 11, 2011 SOX effect on DCAA The public looks to financial documents for evidence on the success of companies and a basis for investing decisions. Investors and banks rely upon these documents to provide accurate information for the decision-making process. The accountants and auditors that create and verify the accuracy of the information within these documents hold the trust of those who rely on accurate financial information. Once the trust is broken, it can take time to rebuild. Unfortunately, the publics’ trust in the accounting profession was shaken with several large scandals such as Enron and WorldCom, and they are still working toward repairing the damage. Investors lost faith and hesitated to invest money, which can hurt the economy. In answer to this developing crisis of faith, President Bush signed the Sarbanes-Oxley Act of 2002 (SOX) (U.S. Securities and Exchange Commission, 2010). This act has far reaching effects on every aspect of the accounting and business world. It placed into effect guidelines and repercussions in accounting to help prevent future fraud. Those standards that were already in place, adapted to SOX and changed to meet the more stringent requirements. One such example is Defense Contract Audit Agency (DCAA) standards. Like all agencies, DCAA had to adapt to the new requirements of SOX, but the changes needed to first be defined. Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of...
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...material is omitted or misstated it could influence the economic decision. An example of material information is if a company owes $1,000,000 to another company, it is immaterial if they owe $1,000. Since the idea of what is material can very complex CPA must use quantities estimates to identify what can be potential issues with materiality. It is not a simple calculation but it is a determination of will verse what will not affect a decision. (Accounting Simplified 2010-2013) Since the implementation of SOX CPA’s need assistance in helping management meet responsibilities, under SOX section 302 companies must review their disclosure of controls and procedures on a quarterly basis, they need to show all important control exceptions and they must: determine deficiencies in internal control, asses their impact on the presentation of financial statements that are fair and show and report any significant control or material deficiencies. There are four key perspectives under SOX of working with materiality and CPA’s must fully understand all four perspectives to be able to estimate the effects. The right process must be every accountant’s goal in providing fair, accurate and complete financial information, the four perspectives of materiality are: (J.B. Brady, 2005) 1. Misstatements or Errors - incorrectly recorded financial statements amounts OR financial amounts that should...
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...TERM PAPER: Fraud Prevention: Are Existing Deterrents Working Kevin B. Hoover ACC 630 – Professor Sheila Vagle University of Maryland University College Introduction I recently read the following quote posted by an anonymous person on Facebook: “I had ADHD when I was a kid too, but when I saw my father taking off his belt, I was healed”. I share that not just because it is true in my case, but because it is a fairly humorous and spot on example of a deterrent. Deterrence is a critical element of the effort to prevent a particular behavior. People have to have a reason not to act that way. When I was a kid, I didn’t know what a deterrent was, but I sure knew that the possibility of a whipping was reason enough not to lose my mind. What deters people working in the business and financial worlds from committing fraud? The Sarbanes-Oxley Act of 2002 perhaps? Fear of prosecution? One would hope so, but it is certain that the answer is more complex than that. In fact, it could be argued that the answer is nothing deters people from committing fraud because fraud is still happening. Therein, lies the aim of this paper. This paper will take a look at financial fraud and the deterrents in place since 2002, and offer the opinion that the deterrents are not working. A history of the issues as they relate to this opinion will be given. Further, recommended solutions to the perceived problems will be put forth. It is worthy of mention that deterrence and prevention...
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...This document provides financial analysis of Competition Bikes Inc. Horizontal Analysis: Horizontal analysis is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations. (Financial Analysis of Financial Statements) The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period. The changes are generally shown both in dollars and percentage. (Financial Analysis of Financial Statements) Let us analyze strengths and weaknesses of the Horizontal Analysis provided by Competition Bikes Inc. Let us consider Net Sales of Competition Bikes over the Year 6, 7 & 8. In the Year 6, Net Sales of Competition Bikes were $4,485,000 which increased in the subsequent Year 7 by $1,495,000 which is percentage increase of 33.3 as compared to 31.8% of increase in the cost of goods, resulting in 37.5% increase of Gross profit. This can be considered as a strength of the company . On the other side considering Year 8 against Year 6, Net sales are increased to $5,083,000 but they are lowered by $897,000 as compared to Year 7. Year 8 Net sales are behind 15% as compared to Year 7, resulting in $266,600 less Gross profits as compared to $1,638,000 profit of Year 7. Year 8 resulted in 16...
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.................................................................. 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? ........................................................................ 22 4. The Sarbanes Oxley Act: Radical Reforms in Key Areas ....................................... 26 4.1 Establishing the Public Company Accounting Oversight Board (PCAOB) ......................................................................................................................... 26 1 Student ID: 082168461 4.2...
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...establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness. Non-for-profit healthcare organizations do not hold themselves to the same standards as the for-profit organizations. Although whether SOX guidelines apply to businesses in the healthcare industry depends on whether the business is a for-profit or non-for-profit organization, some voluntarily adopt SOX in an effort to strengthen internal management controls and increase the quality of healthcare financial reporting (Lohrey, n.d., ¶1). Non-for-profit organizations could certainly benefit from the SOX Section 404 to help reduce the possibilities of corporate fraud by increasing the stringency of procedures and requirements for financial reporting. Many health care executives and board members have concluded that SOX created a new benchmark for best practices, as well as provided extra protection from liability by evidencing direct board attention and oversight of organization compliance (Kusserow, 2013, ¶1). Without audit committees, non-for-profit organizations are at higher risk of financial disaster. Following the SOX compliances can be very beneficial for the non-for-profit healthcare businesses because it will increase the business’s public reputation by increasing the community trust and confidence in the organization. Having better internal controls will help eliminate the possibility of any type of frauds...
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...The effectiveness of the Sarbanes Oxley Act 2002 The financial scandals of Enron, WorldCom and some other large companies in the beginning of this century, encouraged Congress to introduce the Sarbanes Oxley Act (SOX) 2002 in order to fight the escalating commitment of financial statement fraud. The main objective of this legislation was to recover the investors’ trust in the American stock market, and enhancing the prevention and detection of corporate fraud. In this thesis I would like to analyze the effectiveness of SOX 2002 in preventing financial statement fraud, corporate governance characteristics and effective internal control systems. Finally, the results of the study showed that SOX has not been able to prevent or reduce the likelihood of financial statement fraud. Introduction Since the last 20 years the global economy has been facing a dramatic flow of accounting scandals committed by CEOs and managers of prestigious entities known all around the world. One of the most notorious fraud cases in the last decade was that of Enron where debts were hidden, revenues were inflated and the presence of corruption was uncovered. Other similar cases that also battered the accounting world were those of Adelphia Communications and Global, WorldCom, Parmalat, AIG and Tyco International. Most of these scandals took place during the latter years of the previous century and in the beginning of 2000. These actions obviously triggered a high level of uncertainty regarding...
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...have a negative impact on companies’ future earnings (small businesses). The purpose of this article is to examine the disclosure establishment of pre and post Enron, the effect of those disclosures on both corporations and on potential investors and to examine whether financial reporting quality improved with the passage of SOX. A total of 360 audited annual financial statements of the 500 fortune companies were selected. The paper will specifically concentrate disclosures on financial statements, Notes, supplementary (required or voluntary), and other expanded disclosures required by the SEC. The findings will shed light on our understanding about the intended and unintended consequence of SOX. 1.0 Introduction/Literature Review The purpose of SOX Act is to increase corporate transparency and accountability (Friedman, The Business Forum). Though SOX did not address the full disclosure required by the FASB, it simply expanded disclosures by establishing responsibilities. The company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have to certify the accuracy of financial transactions and the reliability of internal control system. SOX further outlined the criminal penalties and sentencing guidelines in the event of financial fraud. In this study I am using an archived data to scrutinize the disclosures presented on the audited financial statement of 500 fortune companies between “2001-2010”. The study...
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... SOX Compliance Solution ***************** CMGT 16FEB2015 ******** SOX Compliance Solution The following Memo is to address the issue of organizing training for all company management personal, in the training of MetricStream© a software solution to The Sarbanes-Oxley Act (SOX). The Memo will address the main issue and how the training will be provided. The memo will also address how the company will be able to measure how successful the training was, and any problems that will be needed to be address had the company decided to conduct any future training sessions. MEMORANDUM TO: All Managers FROM: Head Office DATE: February 16, 2015 SUBJECT: SOX Compliance Solution Compliance to the Sarbanes-Oxley Act is mandatory and requires the financial reports are accurate and reviewed by internal auditors to ensure accountability ("The Sarbanes-Oxley Act ", 2006). To ensure adherence to the SOX requirements and in order to streamline the process while reducing cost at the same time; the company has decided to implement MetricStream© as a software solution for managing the requirements of the act. MetricStream© not only provides tools for the management of internal auditing and reporting process, but also provides a way to show evidence of report findings. This tool also provides collaborative assistance tools to streamline the underlining process required by section 302 of SOX (MetricStream, Inc, 2015). The training required as part of the implementation...
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...NORTHCENTRAL UNIVERSITY ASSIGNMENT COVER SHEET Learner: Patrick W. Bass THIS FORM MUST BE COMPLETELY FILLED IN Please Follow These Procedures: If requested by your mentor, use an assignment cover sheet as the first page of the word processor file. The assignment header should include the Learner’s last name, first initial, course code, dash, and assignment number (DoeJXXX0000-1) justified to the left and the page number justified to the right. Keep a Photocopy or Electronic Copy of Your Assignments: You may need to re-submit assignments if your mentor has indicated that you may or must do so. Academic Integrity: All work submitted in each course must be the Learner’s own. This includes all assignments, exams, term papers, and other projects required by the faculty mentor. The known submission of another person’s work represented as that of the Learner’s without properly citing the source of the work will be considered plagiarism and will result in an unsatisfactory grade for the work submitted or for the entire course, and may result in academic dismissal. | | MGT7019-8 | Dr. Jennifer Scott | | | Ethics in Business | Assgn #7 | | | No additional comments at this time. ------------------------------------------------- ------------------------------------------------- Faculty Use Only ------------------------------------------------- <Faculty comments here> ------------------------------------------------- ------------------------------------------------- ...
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...The Sarbanes-Oxley Act of 2002 Presented by: Ibrahim M. Conteh; Ruby Proctor Garcia; Kathleen M. Parry; Joseph M. Schmerling; Jaime Ulloa Auditing Theory and Practice 0902 ACCT422 4021 Due: April 29, 2009 Table of Contents Page Number What is the Sarbanes-Oxley Act of 2002? 3 Why was SOX established? 4 When did SOX take effect? 5 What companies were affected and how? 6 What does SOX compliance require? 9 Conclusion 11 References 13 What is the Sarbanes-Oxley Act of 2002? The Sarbanes-Oxley Act of 2002 – its official name being “Public Company Accounting Reform and Investor Protection Act of 2002” – is recognized to be the most significant U.S. federal disclosure and corporate governance legislation since the Securities Act of 1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act), and, the provisions of the Act are significant enough that it is considered by many to be the most significant change to federal securities laws in the U.S. since the New Deal. It is best understood, however, 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 (in some cases, within 30 days) on the precise schedule specified by Congress. In that sense, the Enron and WorldCom debacles provided the impetus of public outrage that...
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...Financial Statement Analysis and Controls A1. Based on a cursory examination of the horizontal analysis in the financial data provided, Competition Bikes, Inc.’s financial position improved from years six to seven and declined between seven and eight. The sales forecast in the scenario indicates an economic downturn as the reason for 15% decline in Net Sales. The specific analysis follows. A1a. The Comparative Income Statements for Competition Bikes, Inc. shows a 33.3% increase in net sales between years six and seven with a gross profit increase of 37.5%. This is a significant increase. Comparing percentages from years seven and eight for the same data shows a change in net sales of -15.0% and a decline in gross profit of -16.3%. It is obvious that any increase in net sales and/or gross profit is a sign of strength while a decrease could indicate weakness and year seven to eight shows a significant decline. However, year eight remains an improvement over year six comparatively. Cost of Goods Sold (COGS) increased 31.8% from year six to seven and decreased -14.5% between years seven and eight. These changes are consistent with the net sales changes and do not point to the COGS being the reason for change between the years being compared. Operating expenses show that money spent on advertising increased 37.5% from year six to seven and then management decreased the budget by -16.3%. The savings in advertising could be part of the reason for the...
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...I graduated with a bachelor degree in Business Administration and Master in Professional Accounting from UT-Austin in just four years in 2011. During my last semester in college, I started working at Retailmenot in a team of three people. By the time I graduated, my team members left and I was in charge of training and managing team members. In addition, after noticing that our competitors can monetize on sites like Amazon and Ebay that do not go through a third party marketing company, I asked my boss for permission to implement the click-through links customized on Amazon and Ebay that I learned from researching on the web. Once we employed these links, the company started receiving money that was not earned before. I realized that the key to contribute successfully is to look for improvement in the current process and figure out a way to yield the desired result. In this case, I used the Internet to help me achieve my vision. Since then, I have found the Internet to be a powerful tool for my career. Whenever I need to know how to write certain excel macros or find best practices, I go to the Internet to help me do my job more effectively and efficiently. Even though I was offered a full time job in Austin, I decided to join EY Assurance group in Houston, to be with my family and to apply my Accounting degree. At EY, I was exposed to clients of different size in variety of industries. The different assignments strengthened my analytical and problem-solving skills. After enjoying...
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