Financial Accounting Chapter 18 Essay

AS 3 goes on to state in paragraph A9 that “the documentation requirements in this standard should result in more effective and efficient oversight of registered public accounting firms and associated persons, thereby improving audit quality and enhancing investor confidence”.

Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.

At the end of 2011, retained earnings for the Bisk Company was $1,750. Revenue earned by the company in 2011 was $2,000, expenses paid during the period were $1,100, and dividends paid during the period were $500. Based on this information alone, retained earnings at the beginning of 2011 was

In the Act, title I to Title XI represent the sections of corporate compliance which were introduced mainly for shareholder securitization. Section 302 of the SOX Act, declares that the validation officials of any company, organization or business are both the Chief Financial Officer and the Chief Executive Officer and they must ensure that an honest report and appraisal is made on all the internals records of the organization or corporate. Section 302 also declares that all signing officials to present a conclusion in their report about how effective their internal controls are basing their conclusion on the evaluation they have made as of that particular date (Hermanson, 2009; U.S. House of Representatives, Committee on Financial Services 2002). The financial statements and all statistics associated with them should be a distinctive representation of the correct internal audit condition and in case of any arising discrepancies then they are permitted a grace period of ninety-days in which they out to have been listed. Under section 302, a group of augmented filers have specific conditions or stipulations in them in line with the deficiencies of internal control and which were described in section 404 of the oppositional preliminary accounts (Hermanson,

The act is administered by Securities and Exchange Commission (SEC), which settles deadlines for compliance and publishes rules on requirements that define what records need to be stored and for how long. Interestingly, SOX does not effect only the financial side of corporations but also the IT department which are entitled to store the corporation’s electronic records. The act states that electronic messages and records must be stored for a minimum of five years (SEARCHCIO, n.a.).

The Sarbanes-Oxley Act consists of 11 titles that set significant requirements and consequences for non-compliance in terms of transparency of financial reporting and accountability of leadership for publicly held companies. The Act established the Public Company Accounting Oversight Board (PCAOB), which is an independent, nongovernmental and non-profit organization created to oversee the audits of public companies. The Act also set requirements for the audit committee, the CEO and CFO in regards to certifying financial statements, prohibits loans to executive officers, require real-time disclosure of information, changed the deadline for insiders to report trading in company 's securities to within two business days of the transaction, provides for the protection of whistleblowers, and imposes sanctions and penalties on violators of the provisions of the Act (“Corporate scandals, the Sarbanes-Oxley Act of 2002 and equity prices,” 2007, p. 83). All of these provisions are used to help improve accuracy and reliability of corporate disclosures by ensuring transparency, neutrality, and accountability in reporting financials, in order to protect investors.

What is the future value of $7,540 at the end of 7 periods at 8% compounded interest?

The Sarbanes Oxley Act of 2002 enacted many new legislations including the creation of the Public Company Accounting Oversight Board, which inspects audits of public companies, increased regulations on auditor independence, prohibiting certain non-audit activities, increased corporate responsibility of company executives and management for financial reports, timely and accurate disclosure requirements, and management’s responsibility to design and test the effectiveness of internal controls. These legislations are just a few of the key sections of the Sarbanes Oxley Act among many others and have has a great impact on public auditors and the audit process of public companies. Although many of these new requirements and regulations require more detail, time, and money to implement, they help to protect the public interest of investors and restore the public’s trust in auditors and the financial reports of corporations and business that must follow the policies the forth in the Sarbanes Oxley Act.

The rules regarding auditing can be viewed as a double-edged sword. Firms have to cannot be audited by the same auditors after 5 years of being audited by any particular firm. (SARBANES-OXLEY , 2006)This is intended to have the auditing firms be more independent of the firm it is auditing. In addition, provisions have been put in place regarding when and how an individual who worked at an auditing firm could work at a firm at which they participated in an external audit. This can lead to a significant cost increase at some

Sec. 205. Confirming amendments, clarifies the purpose and composition of the terms, ?audit committee?, ?registered public accounting firm? and ?issuer?.

Sarbanes Oxley Act of 2002 was enacted to protect investors by improving the accuracy and reliability of corporate disclosures. (Public Law 107-204, 2002) This law affects any publically traded company regardless of the industry of the business. Corporate management is held responsible for the validity of the financial statements, internal controls, and is required to submit Form 10-K to SEC every quarter. The Public Company Accounting Oversight Board was created by this act and given the authority to oversee how audits are performed. Audit firms are now required to undergo inspections by the PCAOB. PCAOB mandates accounting and auditing standards. Auditors are required to maintain independence and have a rotation requirement of every five years. It is illegal for corporate management to improperly influence the conduct of audits. The act also enhances corporate disclosure. Corporate management has a requirement of forfeiting

The PCAOB also enforces compliance to Sarbanes Oxley by investigating and if found necessary, may discipline registered accounting firms and persons that are associated with that firm. This enforcement can include suspension of a person, fines and/or imprisonment of up to 20 years for

“The Sarbanes-Oxley Act of 2002 is legislation passed by the U.S. Congress to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise, as well as improve the accuracy of corporate disclosures”(Rouse, n.d.). This act was implemented by the government to avoid financial disgraces which occurred due to lack of proper storage of business records including electronic records and electronic messages. This act requires financial institutions to store audit trail of log files and other financial documentation either paper or electronic versions for five years. It is very important the IT department of any organization to securely store data for audit purpose to avoid huge penalties and even imprisonment. Backup is also an important aspect as this act requires financial institution to have data available for past five years.

The SEC requires that an annual report, Form 10-K,are filed. This form has detailed financial information, operating information, and managements responses to specific questions about the company’s operations. The SEC also requires that all relevant business and financial information be disclosed to potential shareholders any time new securities are being issued. Lastly, Form 3 and Form 4 must also be filed with the SEC. Form 3 is a personal statement of beneficial ownership of securities of a company, for any officer, director, or principle stockholder of a company. Form 4 is a record of any change of ownership within that company (SEC, 2016). Companies must also disclose certified financial statements, including a two-year audited balance sheet, and a three-year audited statement of income and cash flows. Furthermore, the annual reports are required to contain five years of financial data, including “net sales, income or loss from continuing operations, total assets, long-term obligations, and redeemable preferred stock, and cash dividends declared per common share” (SEC,

In section 206, “The CEO, Controller, CFO, Chief Accounting Officer or person in an equivalent position cannot have been employed by the company's audit firm during the 1-year period preceding the audit”. This section aim to reduce the chance of manipulation by high position of accounting firms and make sure accounting firms’