...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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...CRN # Group Research Project Sarbanes Oxley David, Eric, Jeff We have decided to analyze and research the managerial accounting theory of the Sarbanes Oxley Act. In this project we will describe how this act became in existence, the implementation of this act into major corporations, the organization problem that the act was developed to address, the specific pros and cons of this act, how companies have adjusted accounting process because of this act, and our position on the act. In analyzing and researching these different topics we will better understand the complexity and the specific foundations of the Sarbanes Oxley Act. As stated above we will first look at how the Sarbanes Oxley Act became in existence. The Sarbanes Oxley Act was passed into legislation in 2002 because of a series of corporate scandals. Some regard the Sarbanes Oxley Act as the most significant modification of securities regulation since the 1930’s. However, in the 1990’s, there were a number of amendments that significantly enlarged the regulatory powers of the Securities Exchange Commission. These acts were significant that led up to the implementation of the Sarbanes Oxley Act of 2002. These regulations include the Penny Stock Reform Act of 1990, the Securities Acts Amendments of 1990, the Market Reform Act of 1990, and the National Securities Markets Improvement Act of 1996. All of these acts have helped shape and form the original Sarbanes Oxley Act of 2002. For years since the original...
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...two million two hundred thousand in pension plans, and five thousand six hundred jobs (Enron Sentences Will Be Tied to Investor Losses). This all could have been avoided if public companies were forced to changed independent auditors every five years. Throughout this paper, I will be talking about mandatory audit rotation and why I think it is a great idea. First I will talk about the Sarbanes Oxley act and what it requires when it comes to partner rotation. It is important to know what the current rules and requirements are before we discuss how they should be changed. The next item I will discuss is auditor independence and how it is affected by audit rotation. After I talk about the current rules and independence, I will discuss the advantages and disadvantages of mandatory audit rotation. Sarbanes-Oxley Act In 2002, President George W. Bush signed the Sarbanes-Oxley Act of 2002 to protect investors from the possibility of fraudulent activities by corporations. This act was aimed to improve financial statements of corporations and prevent fraud. In section 203 of the Sarbanes-Oxley Act, it gives the requirements of partner rotation. “The new rules provide that an accounting firm will not be independent if either the lead audit partner or the concurring partner performs audit services for more than five consecutive fiscal years of an audit client. Extending beyond the mandate of Section 203, the final rules also requires a five-year "time-out" period before a partner may...
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...Sarbanes-Oxley Act of United States passed in 2002. It brought the most important reform in the current public financial reporting of United States. The act was developed to reinstate the confidence of public in the public companies management after the scandals of WorldCom, Enron, and others. Sarbanes-Oxley has influenced the liabilities and responsibilities of Board of Directors, Corporate Executives, Auditors, Audit Committees, and Analysts (Advantages and Disadvantages, 2012). The strength of the act is companies have better internal control environment. This will lead to more accurate information being available to investors who are more confident in making investing decisions. All participants in financial reporting have increased responsibilities and consequences for not living up to those responsibilities. The weakness of the act is the legislation was passed without any specific guidance to companies as to how it should be implemented. As a result, each company had to create its own methodology for ensuring compliance, which was inefficient and expensive. Also Smaller companies that are audited will pay higher audit fees (Hazels & Thornton, 2007). After doing some research the Sarbanes Act is useful for large national, nonprofit organizations. Organizations have a checklist they have to abide by due to the Sarbanes Act. The first item on the checklist is information regarding Insider Transactions and Conflicts of Interest. The second item is Independent and Competent...
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...Within the last ten years corporate scandals such as Enron, WorldCom, Tyco, etc., triggered Congress to pass the Sarbanes-Oxley Act of 2002 (Ross, Westerfield, & Jaffe, 2010). False reporting of financial transactions was the number one commonality in all the scandals. In every case, shareholders of the companies suffered hefty losses due to the misrepresentation of the transactions. Almost $11 billion was lost by the shareholders of Enron (Blackburn, 2002). WorldCom shareholders lost about $194 million in total (WorldCom Loss, 2003). $9.2 billion was lost to Tyco shareholders (Giroux, 2008). The Sarbanes-Oxley Act is in place because it is meant “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.” (Braddock, 2006). Substantial modifications to corporate governance and business practice regulations were introduced by the Sarbanes-Oxley Act. Within the Act there are many sections, the most important of which is section 404. Section 404 deals mainly with internal control actions and requires companies to provide details on their internal control structures and policies (“Study of the Sarbanes-Oxley Act of 2002 Section 404 Internal Control over Financial Reporting Requirements”). As with any new regulation there are pros and cons to Section 404; however, it is the most significant because it has increased the reliability and accountability of financial statements, it helped...
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...and general staffing plan. I will also provide a rationale for my plan, (b) the form of my business and the benefits it offers my particular business, and (c) a chart of accounts specific to my business, including a rationale as to the selection of each account, the sources of those resources (liabilities and equity), the sources of revenue and expenditures that I expect to incur to earn those revenues. I will build a detailed chart that includes business units, divisions, product lines, etc.) Next, I will analyze whether I will be required to use GAAP or IFRS accounting methods and how the IFRS/ GAAP convergence will impact my business. I will then seek ways to incorporate any changes into my books and records. Then, I will prepare a pro form balance sheet and an income statement providing the assumptions made and support for these valuations. Fourthly, First Steps Educational Program, I will recommend two...
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...Sarbanes-Oxley Act (SOX) of 2002 Topics Covered: How SOX affects the following: CEO’s and CFO’s of Public Companies Outside Independent Audit Firms SOX section 404 on Internal Control The Main Advantages and Disadvantages of SOX Executive Summary The Sarbanes-Oxley Act of 2002 (SOX) was intended to create more transparency in financial reporting and to combat the perceived inflation of CEO compensation. To do this, the act required that a board of directors be financially independent from the CEO and have no familial ties. It also required the CEO and CFO to personally sign all quarterly and annual reports submitted to the SEC and provided for criminal penalties if this was not done. Our research indicates that Sarbanes-Oxley has created more transparency in the system, but it has actually had the opposite effect than was intended with regards to CEO compensation. The research indicates that CEO compensation has increased for many companies post-Sarbanes-Oxley. Due in large part to the Enron scandal, SOX needed to address outside independent audit firms to improve the accuracy of financial reports disclosed by publicly traded companies. These financial reports are used by investors, bankers and interested consumers to determine how well an organization is doing and provide investors with vital information about a company’s performance. This paper will discuss the Sarbanes-Oxley Act and how the SOX law affects outside independent audit firms. Next we review...
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...University of Phoenix Material Article Review Format Guide MEMORANDUM UNIVERSITY OF PHOENIX DATE: November 25, 2013 TO: XXX FROM: XXX RE: Impact of Sarbanes-Oxley Act upon management: a behavioral discussion. (Linsley, C., & Linsley, C., 2008) ARTICLE SYNOPSIS The authors of this article had a desire to examine the behavioral psychological affects on senior management staff members after the introduction of the Sarbanes-Oxley Act of 2002. The behavior changes could affect future legislation that regulates the financial community and how it is perceived and applied. Linsey, C. and Linsey, C. (2008), suggest that it would be useful to further understand how legislation affects people in order to predict behavior changes affected by future legislation and regulation. Linsey, C. and Linsey C. (2008), conducted a very thorough investigation into the SOA effects on senior management, using the work of psychologists Tversky and Kahneman, (Linsey, C. and Linsey, C., 2008) to arrive at their conclusion that behavior of senior management was indeed affection by the Sarbanes-Oxley Act. They saw that the Act could have could be seen in a negative light by management due to assumption and bias in their established thinking. One thing that I particularly interesting about the article, is that the authors noted what they considered to be the managerial reaction to the SOA. They believed that the new regulations would magnify managements discernment...
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...Sarbanes-Oxley Act of 2002 I. Introduction The Sarbanes–Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. 745, enacted July 30, 2002), also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United 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...
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...Sarbanes Oxley Act LAW/421 Sloan Hood January 31, 2014 Cornelius Perry In the United States, there are many businesses that are going through tough times in this economy, and some of the “little” or smaller ones are slowly having to close their doors for business over changes to certain laws over the recent decade. They are having to deal with big fines and account for audits on the very businesses they own and manage. One of the biggest new things or changes is that every business has to go through an internal and external audit each year. This change is the Sarbanes Oxley Act of 2002. And, the audits themselves can be and are rather expensive. The businesses have to hire pros from within for one audit and another from outside for the external audit. This is not very cost effective for most small businesses. In recent times, many energy companies have been experiencing vast amounts of success, in the nineties and early part of the new millennium, They were showing extremely high profits and flourishing greatly. Companies like Tyco, Worldcom, Enron and others were using unethical practices , which not only cost their investors money, but also this made the general public have no faith in the securities markets. It, the trust, was very non-existent, and understandably so. These companies had executives attempting to hide funds and bad practices from the boards and directors that were there and in place to govern their business practices in order to keep the business running...
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...Comparing IFRS to GAAP In financial reporting the U.S uses the generally accepted accounting principles, to record and report. The international financial reporting standards have been used in over 110 countries all over the world. The have similarities but are very different in structure as well, the GAAP is rules based and the IFRS is more principle based when it comes to financial reporting. I will cover some of these difference and similarities in this essay. In what ways does the format of a statement of financial position under the IFRS often differ from a balance sheet presented under GAAP? The IFRS does not require that the statement of financial position be put into a specific order, when reporting financial information. However most under companies IFRS will report their assets in reverse order of liquidity. Under the GAAP companies are required, to report all accounts in specific order by liquidity. Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? No the objectives are both the same for the GAAP and IFRS, they have very similar ways of reporting financial information. They both want companies to keep the information they report up to date, and data needs to be reported in an honest manner. All data reported should also be useful, to an investor, creditor, or regulator. When information is reported correctly, companies are abiding by the industry standard set forth. What terms commonly used under IFRS are synonymous...
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...Sarbanes Oxley Companies Abstract Sarbanes oxley act 2002 was passed on July 30, 2002 and only the public companies are now feeling its impact. This act frequently called the “most significant accounting or auditing legislation since the securities exchange Act of 1934”. After the implementation it has established its demands to the companies for proper management and disclosure of risk. Nortel networks is a giant corporate in telecom industry and as it is expected they also have faced the challenges come from the SOX act. Some of them are in favor and some are against the Nortel. ‘SOX’ has manipulated a larger impact on Nortel internal employee and external customers as well as their financial statement. The outcome of the Nortel is clearly different from before implementing the SOX. This paper is to find out the deeper understanding of SOX, how it governs the public corporate, financial disclosure and practice of public accounting in general sense. Besides this it will focus on the outcomes of Nortel network after implementation of SOX and its financial statement. Introduction There have been found a number of corporate financial scandals (e.g. Tyco International) that provides various type of weakness in the governance and auditing practice in the organization. It represents the failures in controlling the reliability and integrity to the stock markets. The scandals cost billions of dollars for the investors when the affected companies were collapsed. As a result, these...
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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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...Agustin Blanco ACC 290 06/06/2016 Dan Jensen Comparison between IFRS and GAAP This paper provides a comparison between the International Financial Reporting Standards (IFRS) and the United States Generally Accepted Accounting Principles (GAAP) and how they are differentiate from each other in the format of financial statement, conceptual framework, and IFRS terms. There is also a description of some issues the SEC must consider in order to adopt IFRS in the United States as well as a comparison of the rules regarding revenue recognition under IFRS versus GAAP. There is an explanation of the definitions Under IFRS for revenues and expenses, as well as an explanation of the competitive implications (both pros and cons) of Sarbanes-Oxley Act (SOX). Questions IFRS 2-1: In what ways does the format of a statement of financial position under IFRS often differ from a balance sheet presented under GAAP? The main difference between the formatting of IFRS and GAAP statement of financial of position and a GAAP balance sheet is the ordering of liquidity. IFRS does not require a particular order or any classification of accounts. It is common for companies to report assets in reverse liquidity under IFRS. Instead, GAAP specifies and requires all a company’s account be classified and ordered based on liquidity. IFRS 2-2: Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? IFRS and GAAP are very different, but...
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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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