Importance of Full Disclosure in Financial Decision Making

This paper will discuss the legislation that was enacted following these events. It is known as the Public Accounting Return and Investor Protection Act, better known as the Sarbanes-Oxley Act, and has been enacted since the year 2002 (Mishkin, 2012, p. 158). This Act is applicable to all public companies within the US as well as any international companies who have securities within the US registered with the SEC ("The Vendor-Neutral Sarbanes-Oxley Site", 2012). In this paper, it will be discussed why Sarbanes-Oxley was enacted and the key specifications.

1. Openness and Transparency. In the textbook, transparency represents providing clear and equal access of material company information on a regular basis to all investors to allow for informed investment decisions and the ongoing monitoring of the company’s activities. The Satyam scandal erupted when its founder and chairman admitted falsifying accounts of over $1 billion. As the details of what happened unfold, the need for openness and transparency comes into sharp focus.

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government 's and the Security and Exchange Commission 's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

Furthermore, the proposed ASU will impact all companies that report their financial statements under US GAAP. Some of the disclosure requirements are already part of the current Securities and Exchange Commission (SEC) disclosure requirements, but some disclosure requirements will reveal new information about reporting entities. PricewaterhouseCoopers (PwC) (Spang and Suplee, 2016) warns that “companies should consider how the additional disclosures may be utilized and interpreted by various stakeholders. In addition, compiling the necessary information, particularly for multinational corporations, may be challenging and may require updates to systems, processes, and controls”. Therefore, the implementation of the new standards on the early stages may require additional financial resources from the business entities.

The most important thing to any company’s stakeholders is high-quality reporting of its financial statements. Investors, for instance, need to know the truth about a company in order to make an informed decision on whether to make private investment, buy stock or bonds. However, for stakeholders to get the truth about a company, they need to read and understand management’s discussion and analysis, the president’s letter, the notes, as well as the financial statements. Conversely, financial statements must be accompanied with disclosures to prevent them from misleading the stakeholders.

When organizations present financial statements for review, the information contained in the statements should be appropriate and clear enough as to enable evaluators or auditors of the information to make accurate estimations of the presenting organization’s financial status.

The readers should read this specific study to understand corporate fraud. Corporate fraud occurs more regularly than one may think, therefore, understanding what corporate fraud is and the history surrounding it would allow companies and accounting professionals to understand how to help prevent it from occurring within their workplace. In addition, the research provides vital information and history regarding SOX, PCAOB, and AICPA and the rules and regulations required with financial statement reporting and how to better implement rules and regulations to make the company a safer place of business. The research is also vital to companies and accounting professionals as it explains the type of people that commit financial statement fraud

The events of fraudulent and misstatement of financial data over the past decade or so have triggered an epidemic of financial concerns within the accounting community. These scandals have created a lot of economic turmoil, not only in the United States (U.S.), but also in other developed countries around the world. Since these events have arose, several agencies have been seeking various ways to help reduce future events of unethical behavior from continuing. After the WorldCom and Enron scandals at the turn of the century, the Sarbanes – Oxley Act of 2002 (SOX) was implemented in an attempt to mitigate the guidelines of financial reporting in the U.S. and entities operating abroad. Section

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

The role of the CFO has become increasingly important, and this has led to a situation where CFOs are increasingly being tapped to become CEOs. Taub (2003) notes that this trend started around the time of the corporate scandals like WorldCom and Enron, and the increased scrutiny that was being placed on the accounting function in particular by regulators. Durfee (2005) argued that the role of the CFO is critically important for a lot of firms, given the way that CFOs have a focus on shareholder value and on the relevance of derivatives and other financial management techniques to the profits at a lot of companies. That Sarbanes-Oxley places the CFO and CEO in unique positions of risk with respect to the integrity of the firm's financial statements is another factor that encourages firms to seek out new CEO candidates from the ranks of financial managers. Brewis (1999) notes that investors may have more confidence in a company if the chief executive has a financial background. Frauds are more easily detected and therefore less likely to occur, thereby safeguarding shareholder value.

Our clients by their very nature are entrepreneurial. Through drive, will, and determination they developed and grew their organizations. The traits that made them successful, such as drive and a focus on growth, are reasons for their success. An area where many entrepreneurs lack the skill-set or time to address is the creation of the policies and procedures that many large firms have in place. In many cases this is one of the reasons they hired CFO Strategic Partners. Unfortunately, the lack of strict policies and procedures can make them most susceptible to fraudulent activities.

The article discusses that in 1976 the U.S. Supreme Court ruled in one case that omitted financial statement information altering a reasonable investor’s decision proves the material nature of the information. The article continues by describing that lower courts earlier ruled that all financial information whether material or not must have full disclosure in a company’s financial statements. The rejection of the lower courts’ ruling by the U.S. Supreme Court gives the investor the ability to focus on the aspects of the financial statements that are most important by allowing the elimination of minute details (Sauer 2007, 317-357). In essence, this ruling allows for the elimination of financial information below the determined materiality threshold unless otherwise required by the ruling of a regulatory body.

Similarly, organizational transparency on a whole is equally important for all the organization’s stakeholders, especially potential investors. This allows investors to easily weigh their options by evaluating any critical information, and also the fact that the doings of the organizations are there to be seen by everyone

The chief financial officer and the controller of an SEC registrant enterprise should view the obligation to sign the registrant's Form 10-K and Form 10-Q reports as an affirmation that the reports comply with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the SEC thereunder. Due professional care obligates the signatories of the reports to ascertain, to the best of their ability, that the reports are free from material errors, either of omission or of commission. One might agree with the Walters statement by pointing out that management accountants possibly have inherent conflict of interest problems in that their salaries and other remuneration such as bonuses and stock options depend in some measure on the financial results that they report for their employer enterprises. However, the Institute of Management Accountants, in developing Standards of Ethical Conduct for Members; the Treadway Commission, in specifying the obligations of chief accounting officers; and the Securities and Exchange Commission, in issuing Accounting and Auditing Enforcement Releases No. 93 and No. 538, certainly must have given consideration to the concerns raised by Walters and concluded that the management accountant's obligations to the public override any excuse for the accountant's succumbing to the temptation to place his or her interests, or the interests of others in the enterprise, above the public interest. In

A company’s financial reports are the primary method of communication between management and the public. Management has both a legal and professional responsibility to prepare these reports for investors, creditors, and any other potential users. The financial statements and reports provide vital information to the outside users as well as users inside the company about the financial position and past performance. It is important that the information in the reports can be reasonably assured as fairly stated and the reports are made available in a timely manner. For this reason the importance of an effective system of internal controls over financial reporting cannot be overstated.