The Sec Initiative On Accounting Fraud Detection And Misleading Disclosure By Implementing The Accounting Quality Model

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

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

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 act is an exhaustive piece of legislation that contains eleven major section and some of the most important titles outline requirements on auditor independence, analyst conflict of interests, corporate responsibility, enhanced financial disclosures, internal controls assessment, and corporate fraud accountability (Bainbridge, 2007). One of the main benefits of the legislation is to establish auditor independence requirements and rules for the prevention of conflicts of interest in particular by prohibiting auditing firms from offering other services. Prior to Sarbanes–Oxley, the auditing professionals were self-regulated and the decisions that controlled the industry, such as violation of ethical standards, were made largely by auditors themselves (Verschoor, 2012). In order to prevent conflict of interests, the Sarbanes–Oxley Act grants the PCAOB authority to oversee and regulate auditing firms, conduct investigations, and impose disciplinary sanctions against accounting firms (McDonough, 2004). Another provision of the Act is requiring senior executives to be personally accountable and responsible for the financial information reports by certifying that the information is correct.(Welch, 2006). A byproduct of the law implementation is a significant quality improvement on accounting practices;

On July 30, 2002, the Sarbanes-Oxley Act of 2002 was signed into law by the acting President George W. Bush. The overall purpose of the Act was “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.” (SEC, 2013) This Act mandated multiple amendments to improve corporate responsibility, enhance financial disclosures, and combat corporate and accounting fraudulent practices. One requirement of the Act involves a management’s report on internal controls over financial reporting to be included in the annual financial reports of a company. On July 30, 2014, the Securities and Exchange Commission (SEC) announced that CEO Marc Sherman and former CFO Edward L. Cummings of a computer equipment company named QSGI, Inc. are being charged with misrepresenting the state of its internal controls over financial reporting to external auditors and the investing public. Inadequate internal control within the company can be extremely detrimental because investors and lenders rely heavily on financial reports to make decisions. The incorrect records of QSGI enabled the company to maximize loans from their top creditor. This report will show how QSGI’s lack of internal controls hindered their ability to generate revenue and maintain one of the company’s operation centers.

For as long as businesses have existed, so has accounting. With time, it has become more complicated and detailed, but it is still a process of keeping financial accounts in order. Through accounting, or financial reporting, a system is set up to keep track of, maintain and audit the financial proceedings. Because accounting and financial reporting of a business is so important for its accuracy and in general, a lot of ethical, technological and legal concerns are involved. In this paper, we will look identify and explore the concerns of each of these.

These businesses realize that maintaining the public’s trust is one of the keys to commercial success, so they employ investigative accountants to strategically manage the complexities of risks and threats. Investigative accountants scrutinize fraudulent activities, assist senior management with risk management and strive to mitigate potential vulnerabilities. Investigate accountants often respond to fraud allegations and reported financial irregularities. They adopt a strategic threat management approach that enables them to anticipate and respond to risks. They apply advanced technology approaches to help internal customers track and manage data activities. They employ information management principles, data analytics techniques and sophisticated technology tools to help management make well-informed

Prior to 2002, financial statement reporting for publically traded companies within the United States was overseen with far less oversight in comparison to current reporting standards and procedures. Appropriate financial reporting is merely one element that was not occurring prior to 2002. An element of corporate dishonesty and deception existed within some the largest publically traded companies and this idea of deceitfulness was perpetuated by the executive staff of the businesses. Enron’s financial disintegration became the facilitator for the need of more rigid financial oversight, but they were not the only company that added to the idea of corporate fraud.

According to HBS Working Knowledge (2014), since the signing of Sarbanes-Oxley Act into law by George W Bush in 2002 the business environment in the United States changed. The act brought transformation in public business in the perspectives of auditing and accounting (Zameeruddin, 2003). The act majorly aimed at deterring as well as punishing corporate fraud and general corruption by recommending strict penalties for perpetrators of these vises.

A vital part of business today is the Sarbanes-Oxley Act. It was created to protect the integrity of business and the interest of consumers and investors. The Sarbanes-Oxley Act enforces the monitoring of finance data and information technology as it relates to storage of information. It requires the audit of a company’s assets, accounting and finance. The act requires certifications by top company officials’ to guarantee that data submitted is true and accurate. Monitoring to ensure compliance is performed by audits. Falsification of data or non-compliance to the Sarbanes-Oxley Act can results to in penalties of fines and/or imprisonment.

A study conducted by the Association of Certified Fraud Examiners (ACFE) surveyed 959 cases of reported occupational fraud between 2006 and 2008. The report broke fraud into three categories: fraudulent statements, asset misappropriation, and corruption. Ninety-nine of the 959 cases reported financial statement fraud with a median loss of two million dollars, making it the most costly of the fraud categories. In general, the study found that publicly traded companies that had implemented SOX controls reported fewer losses (70 to 96 percent) than those who had not implemented SOX controls. These results imply that implementation of SOX controls are directly related to a reduction in theft and other fraudulent behaviors. Surprisingly, it was noticed that in companies where management must certify the financial statements, fraud took approximately three months longer to detect than in those companies where management was not required to certify the financial statements. However, due to the complexity and relative newness of SOX and the complexity of the businesses and the ingenuity of people, it is not surprising that SOX has not been a booming success. Hopefully, over time, all the wrinkles will be ironed out allowing for deterrence or immediate detection to be attainable. (Rappeport,

The objective of the act is to protect the general public and shareholders from fraudulent activities and accounting errors and to improve the veracity of corporate disclosure. All public companies must now comply with the Sarbanes-Oxley Act. This act not only affects a company financially but it also affects the IT department as they will be managing the data and how long it is to be stored for. The SOX act has stated that all records within the business should not be stored for more than five years. If this is not complied with then there is a chance that they may be faced with fines, imprisonment or even both. The benefactors of the SOX act believed that it was fundamental to “restore public faith in published financial statements by assuring that accounting records were accurate and could be relied upon” (Jahman & Dowling, The Impact of Sarbanes-Oxley Act, 2008). There has been a growing impression that these previous scandals could have been prevented if an agency was formed by the government to help monitor and prevent these inconsistencies in accounting. The debate still continues on whether the Act is efficient.

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

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

A number of financial statement frauds went undetected from auditors in past and attracted a high profile attention. The businessmen add fake assets or transfer the assets of companies to their personal assets and result in accounting scandals when the affected companies are bankrupted or are even close of bankruptcy. Just to mention a few names, accounting scandals of Enron, AOL Time Warner and Xerox are among the hottest accounting scandals of the century. This means that despite presence of professional auditors accounting scandals happen and there is a need to learn from the mistakes of the auditors who overlooked these activities. In this report the case study of Xerox is analyzed in detail to highlight violations of accounting principles and present an example from which lessons can be learnt for the future.