...Financial Statement Insurance This is a proposal to increase the effectiveness of corporate governance in the post-Enron era through the implementation of financial statement insurance. This paper gives a brief history of the purpose of financial statements as well as the importance of external auditing of financial statements. It gives examples of the corporate governance failures of companies like Enron and WorldCom. It covers how and why these failures happened and reviews the grave consequences of the failures. It also takes a brief look at the laws that have been passed to prevent future failures, such as the Sarbanes-Oxley act of 2002. It shows how the new laws have been helpful but have not solved the problem. Finally, it shows how the implementation of financial statement insurance will greatly improve the accuracy of external auditing of a company’s financial statements. Purpose of financial statements The purpose of financial statements is to give an overall picture of the health and profitability of the business. This overall picture of the business provides information on a company’s financial position and performance. Financial statements are also necessary to show changes in a company’s financial position. Financial statements are used internally by managers, shareholders and employees to make good business and investment decisions. They are used externally by prospective investors, financial institutions, suppliers, customers, competitors, and governments...
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...The Sarbanes-Oxley Act of 2002 and Its Effect on the Accounting Profession Robin M. Holdgate BA-507 Advanced Business Law and Ethics Upper Iowa University Richard Healy, A.B., J.D. October 14, 2012 Abstract Sarbanes-Oxley Act of 2002 was hailed as “the most far-reaching reforms since the time of Franklin D. Roosevelt” by President George W. Bush when he signed it into law. 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 law. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco, WorldCom and Arthur Andersen LLP. These scandals cost investors billions of dollars when the share prices of affected companies collapsed and shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act of 2002 and Its Effect on the Accounting Profession Enron, World Com and Arthur Andersen LLP, three names that have long become synonymous with deceptive accounting practices and lack of transparency, were but a few of the catalysts to the hastily enactment of the Sarbanes-Oxley Act of 2002. More commonly known as SOX, it was enacted on July 29, 2002 and signed into...
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...Fraud is a serious problem for most businesses today and often technology compounds the problem. In addition, the role of the independent auditor in the detection of fraud is often questioned. (http://www.swlearning.com/accounting/hall/ais_4e/study_notes/ch03.pdf) Fraud is dishonest activity causing actual or potential financial loss to any person or entity including theft of money or other property by employees or persons and where deception is used at the time, immediately before or immediately following the activity. (http://about.curtin.edu.au/definitions-impact.cfm) * Types of Fraud (http://www.auditsol.com.au/media/Fraudw.pdf) 1. Employee fraud Is internal or employee frauds are when fraud is committed against the company or organization a person is working for. Internal frauds can include: * payment fraud Payment fraud is any fraud that involves falsely creating or diverting payments. Payment fraud can include: * creating bogus customer records and bank accounts so that false payments can be generated * intercepting and altering payee details and amounts on cheques and Payable Orders, then attempting to cash them * creating false payment and financial information to support fraudulent claims for benefits * processing false claims by accomplices for benefits, grants or repayments self authorizing payments to oneself. * procurement fraud Procurement fraud is any fraud relating to a company purchasing goods,...
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...The Sarbanes-Oxley Act of 2002 Abstract This paper addresses financial 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...
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...Sarbanes-Oxley: Benefits vs. Costs 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...
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...Journal of Economic Perspectives—Volume 17, Number 2—Spring 2003—Pages 3–26 The Fall of Enron Paul M. Healy and Krishna G. Palepu F rom the start of the 1990s until year-end 1998, Enron’s stock rose by 311 percent, only modestly higher than the rate of growth in the Standard & Poor’s 500. But then the stock soared. It increased by 56 percent in 1999 and a further 87 percent in 2000, compared to a 20 percent increase and a 10 percent decline for the index during the same years. By December 31, 2000, Enron’s stock was priced at $83.13, and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects. Enron was rated the most innovative large company in America in Fortune magazine’s survey of Most Admired Companies. Yet within a year, Enron’s image was in tatters and its stock price had plummeted nearly to zero. Exhibit 1 lists some of the critical events for Enron between August and December 2001—a saga of document shredding, restatements of earnings, regulatory investigations, a failed merger and the company ling for bankruptcy. We will assess how governance and incentive problems contributed to Enron’s rise and fall. A well-functioning capital market creates appropriate linkages of information, incentives and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include professional...
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...Journal of Economic Perspectives—Volume 17, Number 2—Spring 2003—Pages 3–26 The Fall of Enron Paul M. Healy and Krishna G. Palepu F rom the start of the 1990s until year-end 1998, Enron’s stock rose by 311 percent, only modestly higher than the rate of growth in the Standard & Poor’s 500. But then the stock soared. It increased by 56 percent in 1999 and a further 87 percent in 2000, compared to a 20 percent increase and a 10 percent decline for the index during the same years. By December 31, 2000, Enron’s stock was priced at $83.13, and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects. Enron was rated the most innovative large company in America in Fortune magazine’s survey of Most Admired Companies. Yet within a year, Enron’s image was in tatters and its stock price had plummeted nearly to zero. Exhibit 1 lists some of the critical events for Enron between August and December 2001—a saga of document shredding, restatements of earnings, regulatory investigations, a failed merger and the company filing for bankruptcy. We will assess how governance and incentive problems contributed to Enron’s rise and fall. A well-functioning capital market creates appropriate linkages of information, incentives and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include professional...
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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 agency...
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...Enron and World Finance A Case Study in Ethics Edited by Paul H. Dembinski, Carole Lager, Andrew Cornford and Jean-Michel Bonvin Enron and World Finance Also by Observatoire de la Finance From Bretton Woods to Basel Finance & the Common Good/Bien Commun, no. 21, Spring 2005 Ethics of Taxation and Banking Secrecy Finance & the Common Good/Bien Commun, no. 12, Autumn 2002 Will the Euro Shape Europe? Finance & the Common Good/Bien Commun, no. 9, Winter 2001–2 Dommen, E. (ed.) Debt Beyond Contract Finance & the Common Good/Bien Commun, Supplement no. 2, 2001 Bonvin, J.-M. Debt and the Jubilee: Pacing the Economy Finance & the Common Good/Bien Commun, Supplement no. 1, 1999 Dembinski, P. H. (leading contributor) Economic and Financial Globalization: What the Numbers Say United Nations, Geneva, 2003 Enron and World Finance A Case Study in Ethics Edited by Paul H. Dembinski Carole Lager Andrew Cornford and Jean-Michel Bonvin in association with the Observatoire de la Finance Selection, editorial matter and Chapters 1, 2 and 16 © Observatoire de la Finance Remaining chapters © contributors 2006 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence ...
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...Enron and World Finance A Case Study in Ethics Edited by Paul H. Dembinski, Carole Lager, Andrew Cornford and Jean-Michel Bonvin Enron and World Finance Also by Observatoire de la Finance From Bretton Woods to Basel Finance & the Common Good/Bien Commun, no. 21, Spring 2005 Ethics of Taxation and Banking Secrecy Finance & the Common Good/Bien Commun, no. 12, Autumn 2002 Will the Euro Shape Europe? Finance & the Common Good/Bien Commun, no. 9, Winter 2001–2 Dommen, E. (ed.) Debt Beyond Contract Finance & the Common Good/Bien Commun, Supplement no. 2, 2001 Bonvin, J.-M. Debt and the Jubilee: Pacing the Economy Finance & the Common Good/Bien Commun, Supplement no. 1, 1999 Dembinski, P. H. (leading contributor) Economic and Financial Globalization: What the Numbers Say United Nations, Geneva, 2003 Enron and World Finance A Case Study in Ethics Edited by Paul H. Dembinski Carole Lager Andrew Cornford and Jean-Michel Bonvin in association with the Observatoire de la Finance Selection, editorial matter and Chapters 1, 2 and 16 © Observatoire de la Finance Remaining chapters © contributors 2006 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying...
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...The Ethics Thing: Why It Matters More in Hard Times and Why It’s So Hard to Do What Makes Good and Smart People Do Dumb and Unethical Things? Professor Marianne M. Jennings W.P. Carey School of Business Ethical Lapses • • • • • • • • • • • • • • • • • • • • • • Student loan lenders: Sallie Mae and 17 universities Adelphia Boeing Cendant Computer Associates Tyco International T I t ti l General Electric Global Crossing Merrill Lynch Enron Qwest WorldCom Royal Shell Nortel Krispy Kreme Refco UnitedHealth Group Merck Chiquita World Bank BP Madoff Investment Securities • • • • • • • • • • • • • • • • • • • • • • • • • • • AT&T Titan Xerox Kmart Citigroup Lucent ImClone Arthur Andersen HealthSouth Royal Ahold Parmalat Apollo Group Marsh & McLennan AIG (twice)(Putnam)(Mercer) Fannie Mae (twice) KPMG (twice) GM Options scandals (200 companies) HP Universities and travel Siemens Countrywide Financial Société General Milberg Weiss Bear Stearns Satyam (India) Stanford Investments Jennings 1 Government Issues • • • • • • • • • • • • • • • • • • • • • • • • • • • • Illinois – Gov. Ryan Illinois – Blago Baltimore’s mayor Detroit’s mayor – Kwame Kilpatrick San Diego -- $1.1 billion pension fund deficit; skimming to meet city budget Connecticut – Gov. Rowland Chicago – Mayor’s office and contracts Embezzlement – BLM E b l t Former Delay aides and guilty pleas Abramoff Duke Cunningham -- $2.4 million from defense contractors State crime labs and scandals Tom DeLay Clark...
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...Rights, Responsibilities and Regulation of International Business Sol Picciotto* This essay discusses the paradox of the emergence of corporate codes of conduct in the 1990s, following pressures from consumer and labor activism, in a period of more general liberalization of international investment leading to deregulation. It suggests that the advantages of flexibility and adaptability to specific circumstances offered by such codes are counterbalanced by their self-selected content and inadequate enforcement. Rejecting the assumption that there is a sharp distinction between voluntary standards and binding law, the essay analyzes various ways of grounding codes in legal obligations. It proposes that a safer and more dependable environment for international investment could be provided by a framework agreement, which would link binding standards for corporate social responsibility in key areas, such as combating bribery and cooperation in tax enforcement, with traditional investor rights based on investor protection and liberalization rules. I. Introduction Over the past decade, there has been an intriguing dual movement in the development of the forms of regulation of business in the global economy. Since the 1980s the dominant trend has been liberalization, i.e., the relaxation or removal of national controls on international capital movements. It seemed to many that business firms and investors were close to attaining the goal of a world market...
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...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 officials and to restore public confidence in the integrity of the American business system. The Sarbanes Oxley Act was introduced in 2002. It was created to protect investors after the many corporate scandals of companies such as Enron,...
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...available at www.emeraldinsight.com/0268-6902.htm The changing role of the auditors R. Jayalakshmy, A. Seetharaman and Tan Wei Khong Faculty of Management, Multimedia University, Cyber Jaya, Malaysia Abstract Purpose – To highlight the pressures that the auditors would face in the era of globalisation and the challenges they should be willing to accept in order to maintain trust and integrity. Design/methodology/approach – A wide range of articles and journals published in international journals as well as local journals has been reviewed. The areas covered include audit fraud, true and fair view interpretation, auditor independence and role of internal auditors. Further, ideas have also been obtained from critical write-ups in the business magazines on the fall of multinationals. Findings – A wide range of interpretation has been given by various groups of people on their understanding of the phrase “true and fair”. This has created great confusion as to the interpretation of the audit reports. This has been proven by the fall of many multinationals and the audit pioneers, Andersens. This is one of the causes of audit fraud and it is also seen that as the auditors face an enormous challenge as they enter the twenty-first century, they should be willing to change their attitudes towards their clients. Professionalism should be in the forefront, and an overhaul in the concept of “true and fair” could probably be the solution to harmonisation of the economy. Research limitations/implications...
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...Management& technology Executive Summary Implementing a risk management process in line with organizational or business goals and objectives is vital for successfully managing or mitigating risk. Risk identification, analysis, handling, and monitoring should be addressed by all stakeholders. The process should be implemented in accordance with a pre constructed Risk management plan. A well developed risk assessment will make use of the considerable number of assessments, planning, and formal risk identification performed to provide a picture of the composite or overall risk associated with an organization. Also an effective risk mitigation strategy will provide a significant increase in the confidence level that a business or organization will meet its cost, schedule, and performance requirements. Introduction Risk is an important concept that plays a major role in the success of a business and organization. Risk is defined as the exposure to injury or loss. Every decision that we make as human beings contain some form of risk and most of the time the weight of the risk determine whether we will follow through with an action or not. Risk Management is a systematic way to keep those risks in check and a way to limit those risks in impacting the goals and life-span of an organization or business. Fred Kaen defined risk management in his article Risk Management, Corporate Governance and the public Corporation as the identification, and...
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