Analyze Fraudulent Financial Accounting 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.
Auditor Independence contains 9 parts which stablish standards for external auditor independence, so it will have limit conflicts of interest, also contains that an approval requirements for new auditor, audit partner rotation, and auditor reporting requirements. Also restrict auditing organization from providing non audit services for the same clients they audit.
However, the application of SOX has brought on regulations that public companies must put in place and follow to prohibit these unethical occurrences. One major advantage for associated with SOX is that more thorough audits are being conducted by auditing firms. Audits being conducted more thoroughly will provide accuracy and an increased reliability of financial data. This will affect taxes in a positive way and provide firms with an advantage. Causholli, Chambers, and Payne (2014) suggest that prior to the implementation of SOX in 2002, “an auditor’s opportunity to sell additional non-audit services in the subsequent year, coupled with the client’s willingness to buy services, intensified the economic bond between auditor and client, in turn reducing auditor independence and the quality of financial reporting” (p.681). The regulation of auditor provided non-audit tax services has increased the reliability of tax and financial reporting within companies. Seetharaman, Sun, and Wang (2011) explain that “in a post-Sarbanes-Oxley environment, the benefits of auditor-provided non-audit tax services (NATS) seem to manifest themselves in higher quality tax-related financial statement management assertions” (p. 677).
Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress
The Sarbanes-Oxley Act of 2002Introduction2001-2002 was marked by the Arthur Andersen accounting scandal and the collapse of Enron and WorldCom. Corporate reforms were demanded by the government, the investors and the American public to prevent similar future occurrences. Viewed to be largely a result of failed or poor governance, insufficient
I am not familiar with the law nor do I know if it is currently being used in my organization. Based on my research, Section 404 of the Sarbanes-Oxley Act requires public companies' annual reports to include the company's own assessment of internal control over financial reporting, and an auditor's attestation. Since the law was enacted, however, both requirements have been postponed for smaller public companies. Under the Sarbanes-Oxley Section 404, all public organizations are mandated to publish information in their annual reports in regards to the scope and adequacy of the internal control structure and procedures of their financial reporting. This information is then used to assess the efficiency in the internal control and procedures
The swath of change brought about by Sarbanes-Oxley is wide and deep. The primary changes resulted in the creation of the Public Company Accounting Oversight Board, the assessment of personal liability to auditors, executives and board members and creation of the Section 404. That section refers to required internal control procedures, which did not exist before Sarbanes-Oxley. Public companies are now required to include an internal control report with their annual audit. The oversight board is responsible for monitoring public accounting companies, and works with the SEC. Based on size, accounting forms undergo reviews every one to three years. In addition to the board reviews, public accounting firms now carry personal liability for their
Sarbanes Oxley Act Research Project Brielle Lewis MBA 315 March 6, 2014 I. Abstract The purpose of the Sarbanes-Oxley Act is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law, and for other purposes. (Lander, 2004) The Act created new standards for public companies and accounting
After major corporate and accounting scandals like those that affected Tyco, Worldcom and Enron the Federal government passed a law known as the Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act. This law was passed in hopes of thwarting illegal and misleading acts by financial reporters and putting a stop to the decline of public trust in accounting and reporting practices. Two important topics covered in Sarbanes-Oxley are auditor independence and the reporting and assessment of internal controls under section 404.
Analysis of the Sarbanes-Oxley Act Abstract The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence. In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting. Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a
ABSTRACT 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.
1. The final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:
Section 404 requires public companies to establish internal controls and report annually on their effectiveness over financial reporting. The CFO and CEO are held personally responsible for the internal controls via the requirement to sign a statement certifying the adequacy of the internal control system (Moffett and Grant, 2011, p. 3). Additionally, the company’s independent auditor must issue an attestation regarding management’s assessment of the internal structure as part of the company’s annual report (Bloch, 2003, p. 68).