Nextcard, Inc.

Congress enacted the Sarbanes-Oxley (SOX) Act of 2002 to restore investor confidence by requiring public companies to strengthen corporate governance through several mechanisms, including enhanced disclosure on Internal Control Over Financial Reporting (ICFR). As claimed by regulators, the disclosures on the effectiveness of ICFR are aimed at improving the quality of financial reporting, which would, in turn, reduce the information asymmetry for investors in U.S. capital markets” (Donaldson). Sarbanes- Oxley named after its creators, Senator Paul Sarbanes, D-Md and Congressman Michael Oxley, R-Ohio. Enacted in 2002 with the purpose to crack down on corporate fraud. The implementation of Sarbanes-Oxley led to the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting industry. It was created to eliminate corporate fraud, and it put in place a ban on company loans to executives while also giving job protection to whistleblowers. Before SOX was put into place the accounts were a self-regulated profession, such as medical professionals and lawyers. This is what led to the fraudulent actions of major institutions, people can be greedy, and they need checks and balances to ensure the fidelity of the firm. There are criminal enhanced penalties for corporate fraud and related misdeeds, this brings justice to the sector as well as working as a deterrent for additional immoral

Another outcome of the law is, Public Company Accounting Oversight Board (PCAOB), a public agency was created .This agency act as auditors of the public company .Their area of work is overseeing, regulating and inspecting accounting firms. The act also deals with issues such as auditor independence, internal control assessment, corporate governance and enhanced financial disclosure. The non-profit arm of Financial Executives International, Financial Executive Research Foundation completed a thorough research studies to help support in the foundation of the

Nextcard, Inc was a model for successful people who were looking to the internet in the 1990’s as an enterprise. Nextcard was founded in 1996 in California as the first credit card company to issue cards online. Since the internet was still being introduced to households throughout the United States internet companies were still developing effective methods to reach potential customers.

This $490 million came from the netting manipulation when they offset their expenses with unrelated gains on the sale of assets. The geography manipulation allowed them to move millions of dollars to different sections of the income statement to “make the financials look the way we want to show them” said James Koenig, one of the primary forces behind the scandal. However, none of the fraudulent activities would have gone unknown for so long without the aid of the auditors, Arthur Anderson LLP, involved with Waste Management.

The Enron and WorldCom scandals were arguably the incidents that permanently changed the procedures for accounting controls. In response to these incidents, the Sarbanes-Oxley Act (SOX) of 2002 was passed. Once the knowledge of these scandals was made public, a number of subsequent accounting scandals were discovered in public companies such as Tyco International, HealthSouth, and American Insurance Group. In addition, a then-employee-owned company, Post, Buckley, Schuh & Jernigan, Inc. (dba PBS&J, now known as “Atkins North America, Inc.”), was also hit by a similar accounting scandal. Henceforth, a case study of PBS&J is presented where we will examine the fraudulent transactions that

For instance, the funds owed the company by the Rigas family went undisclosed in the statements, because the management at Adelphia deemed such disclosure as being “unnecessary” (Barlaup, Hanne, & Stuart, 2009). Given that Adelphia was a publicly traded company, the purposeful non-disclosure caused potential investors to rely on financial records that were grossly misleading. The inevitable result was the investors continued to inject money into a company that had all the appearances of profitability and sustained growth, but that was, in reality, rapidly becoming insolvent. Moreover, lending institutions also relied on the “independently-audited” financial statements, and they were more than eager to loan the company money, given Adelphia’s presumed state of financial “profitability.”

billion USD (2). In 2016 September, they are passed by JP Morgan and went down to second

Per Brooks & Dunn, MCI’s management was reluctant to show the true state of the company’s finances to its shareholders in order to push up the company’s valuation and profits. Walt felt pressure from MCI’s senior executives to minimize the visibility of $120 million in bad debts and to limit bad debt write offs to $15 million per year in order to attract a favorable takeover bid. He used many different unethical, illegal and fraudulent techniques to minimize the company’s bad debt expenses over years and cover their grossly past due accounts receivable.

In a recent article in the New York Times, Sarbanes-Oxley, Bemoaned as a Burden, Is an Investor’s Ally, by Gretchen Morgenson, is about some challenging the requirements that were put in place and the cost to the company’s. According to Morgenson, Tom Farley is one that is an outspoken critic of the law requiring outside auditor to attest on the management’s internal controls on the financial statements. He attributes the decline in corporations in the Unites States.

The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB) to assume the responsibility of overseeing the auditors of public companies. The PCAOB is a private-sector, non-profit corporation. It was established to "protect the interests of investors and further the public interests in the preparation of informative, fair, and independent audit reports". (The PCAOB) Although the PCAOB is a private sector organization, it has many government-like regulatory functions. The PCAOB was created in response to an increasing number of accounting restatements by public companies during the 1990s and a series of recent high-profile scandals like Enron and WorldCom. Prior to the PCAOB, the audit industry was self-regulated

Colombo’s case together with that of five other employees was put on hold after the owner of BNC, Lehman Brothers, filed for bankruptcy in late 2008. The company dismissed the allegations made in the suit arguing that they would contest them on the merits in the pending litigation. Meanwhile, the sub prime loan began to go bad, making the lives of thousands of wholesalers in the company very difficult, thus forcing them to quit from the company. Wall Street reined in the company’s mortgage factories, pulling credit lines, tightening its lending principles, and compelling lenders to buy the same risky loan it once consumed. In essence, the company was in the verge of collapse.

From 1996 to 2006, Tyco violated various federal securities laws by the means of using inopportune accounting methods that involved transactions that had no economic substance; therefore, the overstatement of their financial results by at least one billion dollars had significant effect on statements submitted involving the balance sheet, income statement, and the company cash flow. In addition to the falsely portrayed financial information, Tyco shattered the perception of stakeholders and shareholders

Through this review process of reading Mr. Patterson’s letter as well as the articles supporting his facts, I have gained a lot of knowledge on this current business event. Not only does this event consist of potential accounting errors, but also that of mismanagement of valuable capital resources from the top down (including board of director actions). The articles and SEC filings that I accessed were very helpful in gaining this knowledge, however they were also quite technical. Some areas that I did not understand were as follows:

To auditors, investors, fund managers, short sellers, and other external users, fraud and bankruptcy models may serve as important tools in analyzing the financial information presented by companies. Along with the earnings management ratios, quality of earnings and quality of revenue (Schilit 2003), more elaborate models and metrics (Altman 1968 and 2005, Dechow, Sloan and Sweeney 1996, Sloan 1996, Beneish 1999, and Dechow, Ge, Larson, and Sloan 2007, and Robinson 2007) may serve as a veritable arsenal of techniques for detecting financial problems

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.