The purpose of this research is to provide a summary outline on internal auditing by uncovering motives behind corporate fraud, executives greed for power, money and influence. These issues will include a transitory story of the Archer Daniels Midland Company (ADM) scandal which results in fraudulent corporate practices using the fixed pricing scheme. If internal auditing practices were implemented at ADM may have saved investors and customers millions of dollars. This topic shifts to company responsibilities for employing internal auditing practices and managers’ duties to uphold integrity over a decade Sarbanes-Oxley Act of 2002 has been prescribed. This paper ties in the connection between internal auditing and management by flowing into managerial accounting processes.
Keywords: Sarbanes-Oxley Act of 2002, (SOX), managerial accounting internal controls, internal audits, management, corporate fraud, ethics responsibility, whistleblowing, white collar crime, greed
Internal Auditing The internal auditing has vastly changed since the Archer Daniels Midland Company price fixing scandal, the Enron deceit or implementation of Sarbanes-Oxley Act of 2002. Both of these corporations had two things in common greed and faulty internal auditing accounting practices. In fact, since the time of both scandals Hollywood has made two movies, “Dick and Jane” played Jim Cary, who was executive that highlighted the debauchery of Enron not mention the second movie “The Informant” played
This paper analyzes a fictional privately held company, Smackey Dog Foods, Inc. as well as its fictional auditor, Keller CPAs. The analysis is based on a Keller Graduate School of Management scenario and a series of questions developed to address concepts learned throughout the External Auditing course. Concepts include: SEC influence, audit planning, audit stages, internal controls, confirmations, sample size, obtaining evidence, inventory, warehousing cycles, Professional Rules of Conduct, and auditor’s legal liability. Each of these auditing concepts are explained and then applied to the scenario between Smackey Dog Foods, Inc. and Keller CPAs.
In addition, associated with the misapplication of accounting methods, the financial industry has been plagued with one disaster after another involving numerous scandals from top leading American companies. Consequently, the Sarbanes-Oxley Act was passed in 2002 compromising eleven sections that are generated to insure the responsibilities of the company’s managers and executives. This act identifies criminal penalties for particular unethical practices and currently has new policies that a corporation must follow in their financial reporting. The following examples describe some of biggest accounting methods as a result of the greed and the outrage of the ethical and financial misconduct by the senior management of public corporations.
The purpose of this paper is to discuss the SEC’s influence on auditing a private company and the essential activities involved in the initial planning of an audit. Next the discussion will delve into four stages of the audit and tasks performed by the auditors as well as internal control findings and various aspects of the audit.
The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.
A lot has been made, perhaps without justification, of the July 30, 2002 passage of H.R. 3763, The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley" or The Act). Having read the Act, I suspect that the great praise is unfounded. I intend to address three issues presented within the act. First, I will address stock options as considered (or neglected, as the case may be) by Sarbanes-Oxley. Second, I will address the creation of a Commission designed to oversee audits and corporate accounting practices, and the potential efficacy of this Commission. Finally, I will address the modifications to the Federal Sentencing Guidelines as it relates to corporate fraud.
Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,
Sarbanes-Oxley Act was a game changer for corporations all across the United States. Prior to Sarbanes-Oxley Act, big name companies such as Enron, Kmart and Tyco were more inclined to have fraudulent activities happen internally. Having all these issues arise during the last decades, Congress was anxious to act and create Sarbanes-Oxley Act with the intentions to protect investors and have strict reforms to deter internal financial frauds from occurring again. Although, this reform has had a great amount of success in achieving its goals, it also has some holes that were not well though out, when it comes to the entirety of it. The main problem with Sarbanes-Oxley is the cost it has on smaller companies, which shifted the power from the investors and into the auditors. (Prince, 2005)
The Sarbanes-Oxley Act of 2002 (SOX) was passed by Congress and signed into law by President Bush to “mandate a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud” and applies to all public companies in the U.S., large and small (The Laws That Govern the Securities Industry, 2015). The main purpose of Sarbanes-Oxley is to “eliminate false disclosures” and “prevent undisclosed conflicts of interest between corporations and their analysts, auditors, and attorneys and between corporate directors, officers, and shareholders” (Neghina & Riger, 2009). As a whole, the Sarbanes-Oxley Act is very complex and affected organizations must do their due diligence to ensure they
White collar crime has been around for ages. Today more and more news stories can be found where the elite, the top executives of fortune 500 companies, are being prosecuted for participating in illegal activities. It was hoped that the passing of the Sarbanes Oxley Act of 2001 after the Enron debacle would reduce the amount of illegal acts being committed in corporate America. The Sarbanes Oxley act makes executives personally responsible for their activities requiring top management to sign off on financial statements stating they are true and accurate and these executives can face jail time for committing fraudulent acts. Unfortunately, immorality in business is still running rampant. One illegal practice we see happening in
The Sarbanes-Oxley Act of 2002 was designed to create oversight and decrease the amount of corruption in the accounting industry. The Article includes a number of provisions dealing with financial reporting, conflicts of interest, corporate ethics and the oversight of the accounting profession, as well as establishing new civil and criminal penalties.
Over the years Congress has acknowledged and agreed that more needs to be done to incentivize and protect whistleblowers. In the early 2000s, following major accounting scandals, Congress passed the Sarbanes-Oxley Act of 2002 (“SOX”). Then several years later, following more major financial scandals and plummeting of the United States economy into the Great Recession of 2008, Congress passed the Dodd-Frank Act. This section will briefly describe each of these Acts as they provide background for the dispute.
The Sarbanes Oxley Act of 2002 was created to extinguish doubts on the financial system that were introduced during the financial collapse of Enron, a resource trading company that was brought to its need by corporate greed and corruption. Enron’s downfall could have been avoidable should there have been any transparency into the finances of the company for the shareholders. It was for this fact that the Sarbanes Oxley Act introduced many new factors of protection for transparency, separation of duties and tougher penalties for those who violated investor trust. All of these facts will be reviewed and discussed to show their impacts on businesses still functioning today.
The “Attest Function” and internal controls are useful theoretical concepts. However, in light of financial scandals such as Enron, WorldCom, and the more recent Bernie Madoff “Ponzi” scheme, one could argue that these concepts—especially “internal controls”—are not working well in practice. This point is well taken by the accounting profession which has been working diligently over the past few decades to improve the internal control concept, beginning with the
Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.
The purpose of this paper is to highlight the role of external auditing in promoting good corporate governance. The role of auditors has been emphasized after the pass of the Sarbanes-Oxley Act as a response to the accounting scandal of Enron. Even though auditors are hired and paid by the company, their role is not to represent or act in favor of the company, but to watch and investigate the company’s financials to protect the public from any material misstatements that can affect their decisions. As part of this role, the auditors assess the level of the company’s adherence to its own code of ethics.