...How Sarbanes-Oxley Has Impacted the Auditing Profession Auditing (BME-214024-02-11FA1) Table of Contents Introduction 3 Internal System and Process Collaboration Is Critical For SOX Compliance 3-5 Analyzing SOX by Section to Assess the Impact on Auditors: Section 302 5 Section 404 5-6 Section 409 6-7 Section 802 7 SOXs’ Impact on the Audit Profession 7-8 Conclusion 8-9 References 10 Introduction In the past decade or so government-mandated compliance legislation within the auditing profession, such as the Sarbanes-Oxley Act of 2002, has created a significantly greater amount of opportunities for providing services. However, it has also introduced an entirely new and higher level of complexity as a result. In this paper I will evaluate how the Sarbanes-Oxley Act has and is continuing to influence the auditing profession, specifically concentrating on how the advantages and disadvantages of the Sarbanes-Oxley Act are impacting this profession today and in the future. Although Governance, Risk and Compliance has grown significantly as a framework for ensuring corporate-wide compliance with government-based reporting and auditing, there is still a considerable gap between actual auditing practices and performance to standards (Jelinek, Jelinek, 223). The lack of internal controls over the auditing process has created significantly more work for companies to ensure...
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...Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox; July 30, 2002) is a United States federal law passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States. This examination of the Sarbanes- Oxley Act of 2002, will address the following: 1.Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. 2.Examine why the new enhanced standards are necessary 3. Evaluate the benefits and cost of the SOX Through research of the Sarbanes-Oxley Act of 2002, the above questions will be addressed. Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. Sarbanes-Oxley Act was enacted following a number of major corporate and accounting scandals involving prominent U.S. companies. Public trust in accounting and reporting practices was in a spiraling decline, SOX was designed to protect investors by improving the accuracy and reliability of corporate disclosures made in accordance with the securities laws. SOX standards must be followed or strict penalties for noncompliance can result. According to...
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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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...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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...federal securities laws in decades. Effective in 2006, all publicly-traded companies are required to 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...
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...Yuliya M. Ford University of Maryland University College Introduction In response to public concerns regarding the accuracy and quality of reported financial information by publicly traded companies, in mid-summer of 2002 Congress passed Public Law 107-204, 116 Stat.745 which is commonly referred to as the Sarbanes Oxley Act (SOX or the Act). The law was passed in large part due to the public outcry of the numerous unethical accounting scandals and fraudulent reports from such notable companies as - Enron, WorldCom, and Global Crossing (Singer and You, 2011). The goal of SOX was to mandate corporate governance reforms in order to help to instill investor’s confidence in capital markets. In an effort to establish best practices and standards SOX created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is chartered with the establishment of independent standards and overseeing the compliance of publicly traded companies with these standards (Agami, 2006). Another very important aspect that the PCAOB is charged with is reviewing the samples of audits conducted by accounting firms and ensuring that both the spirit and letter of the SOX act was established under (Parles, O’Sullivan, & Shannon, 2007). The Sarbanes-Oxley Act is divided into eleven sections referred to as titles. In terms of compliance, many have posited, including Addison-Hewitt Associates (2003), that the most important sections in the body of the Act are titles 302, 401, 404, 409, 802 and 906....
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...Sarbanes-Oxley: Benefits vs. Costs The American Competitiveness and Corporate Accountability Act of 2002, commonly referred to as the Sarbanes-Oxley Act (SOX) was enacted in response to corporate financial scandals involving companies such as Enron, WorldCom, and Tyco International. While SOX was written specifically for public companies; a few provisions, including whistleblower protection and document retention apply to all companies and nonprofit organizations (Levy, 2009). The stated purpose of the SOX legislation is “to protect investors by improving the accuracy and reliability of corporate disclosures” (Martin & Combs, 2010). SOX requires additional internal monitoring and disclosure of internal accounting control practices. SOX also mandates that CEOs and CFOs personally certify accounting disclosures. Ultimately, SOX was designed to increase accountability and transparency in an effort to restore investor confidence. While SOX has been effective since its enactment, many question whether the benefits outweigh the costs. Major Provisions SOX includes over 60 separate sections, including several significant provisions (H.R. 3763). Section 101 created the Public Company Accounting Oversight Board (PCAOB) to oversee SOX and public accounting firms. Oversight is critical to the successful implementation of SOX requirements. Section 203 requires the lead audit or coordinating partner and the reviewing partner to rotate off the audit every five years. Section...
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...Yuliya M. Ford University of Maryland University College Introduction In response to public concerns regarding the accuracy and quality of reported financial information by publicly traded companies, in mid-summer of 2002 Congress passed Public Law 107-204, 116 Stat.745 which is commonly referred to as the Sarbanes Oxley Act (SOX or the Act). The law was passed in large part due to the public outcry of the numerous unethical accounting scandals and fraudulent reports from such notable companies as - Enron, WorldCom, and Global Crossing (Singer and You, 2011). The goal of SOX was to mandate corporate governance reforms in order to help to instill investor’s confidence in capital markets. In an effort to establish best practices and standards SOX created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is chartered with the establishment of independent standards and overseeing the compliance of publicly traded companies with these standards (Agami, 2006). Another very important aspect that the PCAOB is charged with is reviewing the samples of audits conducted by accounting firms and ensuring that both the spirit and letter of the SOX act was established under (Parles, O’Sullivan, & Shannon, 2007). The Sarbanes-Oxley Act is divided into eleven sections referred to as titles. In terms of compliance, many have posited, including Addison-Hewitt Associates (2003), that the most important sections in the body of the Act are titles 302, 401, 404, 409, 802 and 906...
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...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 in the world, SOX would be marketed as the antidote to the epidemic of corporate...
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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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...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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...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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...well-known concept of materiality. CPAs need to be able to identify key control exceptions and apply materiality to determine their financial impact. First we need to know what material is; in accounting something that is material is something that is significant. Material information is something that would vastly affect the financial statements of a company. If that 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...
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...The Favorable Impacts of Sarbanes-Oxley Act Outweigh its Unfavorable Impacts. 1. Introduction. As Eyden indicated in 2012, the Sarbanes-Oxley Act, as the reaction to scandals and collapse of several business magnates between 2000 and 2002, aimed at strengthening the accountability of Financial Reporting and audit practices (SOX Has Restored Investors' Confidence, p2). The Act has made considerable contributions since passage. Staff of the U.S. Securities and Exchange Commission (SEC) reported in 2003 that a series of reforms and improvements regarding Financial Reporting and Accounting Regulations have been implemented since SOX (p.24). According to Hanna (2014), a survey conducted by the Financial Executives Research Foundation in 2005 presented that “83% of large company CFOs agreed that SOX had increased investor confidence.” (para.12). However, Engel, Hayes, and Wang (2004) indicated that many opposed the Act to be too costly and requires too much effort to adapt to its constant changes, especially for small businesses; and it had forced companies out of the public capital market due to the increasing complexity in regulations (p1). Despite all the criticism, the favorable impacts of SOX outweigh unfavorable ones because the Act has facilitated various Accounting Reforms and rebuilt investors’ confidence, both of which carry essential long-term benefits. Moreover, Highlights from Protiviti’s 2015 SOX Compliance Survey proved SOX-related expenses and efforts...
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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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