...markets and facilitate capital formation” (SEC. The Investor’s Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation. From http://www.sec.gov/about/whatwedo.shtml#create). Currently, SEC is responsible for administering Securities Act of 1933 and 1934, The Trust Indenture Act of 1939, The Investment Company Act of 1940, The Investment Advisors Act of 1940, The Sarbanes-Oxley Act of 2002 and Credit Rating Agency Reform Act of 2006. Congress has allowed SEC to bring civil enforcement actions against individual or companies in violation of securities law. It is the primary body to regulate public companies and their activities in United States. SEC has enacted various rules, regulations and releases to pursue its objective of investor protection mission. Out of numerous provisions, section 10(A) –Audit Requirement is fundamental one. “In 1995, with little fanfare, the SEC added a powerful new weapon to its enforcement arsenal, specifically directed at independent auditors ... Section 10A of the Securities Exchange Act of 1934, as amended. Although, to date, the SEC has only made limited use of Section 10A, the recent spate of false financial disclosures ensures more extensive use of this powerful new weapon” (Hecht, Charles. The SEC’s New Weapon: Section 10A. Retrieved July 2002 from http://accounting.smartpros.com/x34666.xml). Section 10(A) has three...
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...Deloitte AAER-3428 Case Analysis AAER No. 3428 is a report of an enforcement action against Deloitte & Touche (South Africa) in regards to violations of auditor independence and improper professional conduct. Certain names were not disclosed in this case and will be referred to as “Director” and “Company A.” The key players involved in this case are Deloitte & Touche South Africa (“DT-SA”), their wholly owned consulting affiliate Deloitte Consulting (Pty) Ltd. (“DC-SA”), DC-SA’s contracted consultant (“Director”) and DT-SA’s auditing client (“Company A”). In April, 2006, Director was hired by DC-SA as an independent consultant to provide assistance in the energy industry. There were no business conflicts until September 1st, 2007, when Director joined the board of directors of Company A. Because DC-SA is owned by DT-SA, Director’s employment with DC-SA became a prohibited business relationship that impaired auditor independence between DT-SA and their client, Company A. Because of an absence of controls in place for DC-SA, DT-SA was unaware of this prohibited relationship until August 11, 2008. After further review, Director’s employment was effectively terminated on September 30, 2008. DT-SA’s lack of internal controls and continued employment of Director for over a year caused them to violate auditor independence and engage in improper professional conduct. The particular rules that were violated in this case were rules 210.2-01 and 210.2-02(b) of Regulation...
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...investment dealings. b. What are the five divisions of the SEC? Briefly describe the purpose of each. The five divisions of the SEC are corporate finance, enforcement, economic and risk analysis, investment management, and trading and markets. The corporate finance division ensures that investors are provided with up to date and accurate financial reporting data of market resources. The enforcement division investigates suspected violations of any activities pertaining to the other four divisions. The economic risk and analysis division analyses aspects of the market and all divisions of the SEC to mitigate risk in major market shifts. The investment management division has oversight of internal corporate investment plans such as mutual funds and exchange traded funds. The trading and markets division ensures that all aspects of the market are fair and orderly. c. What are the responsibilities of the chief accountant? The chief accountant is responsible for establishing and enforcing accounting and audit policies to ensure reporting is conducted accurately and fairly. The chief accountant also maintains the standards used for accounting to ensure transparency and accuracy. 2 – Financial Accounting Standards Board (source: BYP7-5 Kimmel textbook). The FASB is a U.S. private organization established to improve accounting standards and financial reporting. The FASB conducts extensive...
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...(ROSC) Cambodia ACCOUNTING AND AUDITING May 15, 2007 Contents Executive Summary Preface Abbreviations and Acronyms I. Introduction II. Institutional Framework III. Accounting Standards as Designed and as Practiced IV. Auditing Standards as Designed and as Practiced V. Perception of the Quality of Financial Reporting VI. Policy Recommendations EXECUTIVE SUMMARY This report provides an assessment of accounting and auditing practices within the corporate sector in Cambodia with reference to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and the International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). This assessment is positioned within the broader context of the Cambodia’s institutional framework and capacity needed to ensure the quality of corporate financial reporting Cambodia is putting in place an institutional framework with regard to accounting, auditing, and financial reporting practices. However, institutional weaknesses in regulation, compliance, and enforcement of standards and rules still exist. The accounting and auditing statutory framework suffers from inconsistencies among different laws. Although the national accounting standards and auditing standards are based on IFRS, and ISA, respectively, they appear outmoded and have gaps in comparison with the international equivalents. There are varying compliance gaps in both accounting and auditing practices...
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...but banks and companies were still loaning money and investing in the market leading people to believe everything was okay. Investors were now unable to invest confidently and banks had no regulations on their financial statements. The accounting profession was pressured to establish more uniform accounting standards after this stock market crash of 1929. Some people felt that misleading or, incomplete if you will, financial statement information made the stock prices inflate contributing to the stock market crash and the depression that followed. The Securities Act of 1933 and the Securities Exchange Act of 1934 were designed to restore that confidence in the investor. The 1933 act sets accounting and disclosure requirements for initial stocks and bonds, while the 1934 act applies to secondary transactions and mandates reporting requirements for companies whose securities are publicly traded. The 1934 act also created the Securities and Exchange Commission (SEC). The 1934 act gave the SEC both the power and responsibility for setting accounting and reporting standards for companies whose securities are publicly traded by Congress. (highered.mcgraw-hill.com) However, the SEC, has delegated the primary responsibility for setting accounting standards to the private sector. The standards for publicly traded companies are now being written by the PCAOB. The SEC delegated the responsibility, but...
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...of a new director of corporate enforcement. | |• Implementation of new SEC independence rules. | |• Emergence of a more co-ordinated international approach to audit regulation. | | | |On the 3rd of August the Auditing Practices Board issued a draft practice note providing up-to-date guidance to auditors of | |banks in Ireland. The Institute of Chartered Accountants in Ireland led the project group which drafted the practice note on | |behalf of the Auditing Practices Board and there was extensive consultation with a number of government agencies and in | |particular with the Central Bank. | | | |The report is quite comprehensive and deals with a number of issues raised by the review group on auditing. In outline the | |issues addressed are as follows: | |• Guidance in relation to non-audit work carried...
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...the Public Company Accounting Oversight Board (PCAOB) and Auditing Standard 5 (AS 5). Due to the increased demand for oversight in auditing standards, this paper also examines the impact of Sarbanes-Oxley (SOX) and the reasons for the creation of the PCAOB, as well as the implementation of the rules and regulations. Additionally, this paper examines the impact of AS 5. Keywords: audit, AS 5, financial statements, PCAOB, SEC, SOX Table of Contents Introduction ………….……………………………………………………..……………………4 Scandals ...…..……………………………………...……………………………………………4 PCAOB Mission and Vision …………………… ……………………………………………….5 Structure ………………………….……………..……………………………………………5, 6 PCAOB's Objective….…….……..…………………………………………………………….6, 7 Duties ………………………….…..………………………………………………….……… 7, 8 Standard Setting………..………………………………………………………………..……..…8 Inspection ………………………………………………………………………………………..8 Enforcement…………..………………………………………………………………..……...8, 9 AS5 .…………………….…………………………………………………...…………….…9, 10 Conclusion………………………………………………………………………….....……. 10 References …………………………………………………………………………………….. 11 History of PCAOB …………………………………………………………………… 13-19 Introduction Sarbanes-Oxley (SOX) was passed in 2002 and as a result brought numerous changes to auditing. The Sarbanes-Oxley was passed in direct response to business failures, allegations of corporate improprieties and financial statement restatements. Prior to the SOX passage, auditors used a risk-based approach to perform audits of a company's internal...
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...MICHAEL C. KNAPP SEVENTH EDITION MAKE IT YOURS! SELECT JUST THE CASES YOU NEED Through Cengage Learning’s Make It Yours, you can — simply, quickly, and affordably — create a quality auditing text that is tailored to your course. • Pick your coverage and only pay for the cases you use. • Add cases from a prior edition of Knapp’s Contemporary Auditing. • Add your course materials and assignments. • Pick your own unique cover design. We recognize that not every program covers the same cases and topics in your auditing course. Chris Knapp wrote his case book for people to use either as a core e book or as a supplement to an existing book. If you would like to use a custom auditing case book or supplement the South-Western accounting book you are currently using, simply check the cases you want to include, indicate if there are other course materials you would like to add, and click submit. A Cengage Learning representative will contact you to review and confirm your order. G E T S T A R T E D Visit www.custom.cengage.com/makeityours/knapp7e to make your selections and provide details on anything else you would like to include. Prefer to use pen and paper? No problem. Fill out questions 1-4 and fax this form to 1.800.270.3310. A Custom Solutions editor will contact you within 2-3 business days to discuss the options you have selected. 1. Which of the following cases would you like to include? Section 1: Comprehensive Cases 1.1 1.2 ...
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...Sarbanes-Oxley Act of 2002 Bus 102 – Dr. Sean D. Jasso John Chi 12/9/2010 Table of Contents - Table of Contents Introduction History of the Act Implementation Impact on Business Policy Analysis Conclusion Appendix References pg. 1 pg. 2 pg. 3 pg. 4 pg. 7 pg. 9 pg. 11 pg. 12 pg. 14 1|P a ge Introduction Corporate Scandals are business scandals that initiate from the misstatement of financial reporting by executives of public companies who are the ones trusted to run these organizations. Corporate scandals are derived in many ways and these misrepresentations happen through overstating revenues and understating expenses, overstating assets and understating liabilities, and use of fictious and fraudulent transactions that gives a misleading impression of the company’s financial status. There were a few corporate scandals that took place in the last decade that forever changed investment policies in corporate America. The companies that are most commonly known for these scandals are Enron, Adelphia, and WorldCom. These companies had hidden their true financial status from creditors and shareholders until they were unable to meet the financial commitments which forced them reveal massive losses instead of the implicated earnings. The ultimate result cost investors billions of dollars when the share prices of the affected companies had collapsed. According to Hopwood, Leiner & Young (2002), pg. 130, “the public outcry from the corporate scandals were enormous...
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...Generally Accepted Accounting Standards Paper Prithvi Shenoy ACC491 October 14, 2013 Michael Milkonian Abstract The importance of Auditing has gained considerable attention ever since its introduction in the mid-1800s. According to FASB, Statement of Financial Accounting Concepts No. 2, relevance and reliability are central to making accounting information useful for decision makers. To achieve this, auditors are required to obtain “reasonable assurance that those financial statement are presented fairly in all material respects” (Boynton & Johnson, 2006). This paper aims to explain the nature and types of auditing which is governed by the Generally Accepted Auditing Standards (GAAS). The paper then discusses the effects of Sarbanes-Oxley (SOX) Act 2002 and the Public Company Accounting Oversight Board (PCAOB) on publicly traded companies (issuers). Finally, the changes in the auditing environment with respect to the additional responsibilities placed on auditors and PCAOB as a result of the enforcement of SOX Act 2002 is discussed in the paper. Generally Accepted Accounting Standards Paper The elements of GAAS In response to the McKesson & Robbins’ accounting scandal in 1938, the AICPA introduced the 10 Generally Accepted Auditing Standards (GAAS) in 1939 to provide “guidance on the conduct of an audit” as well as an “overview of the timing of the different phases of an audit engagement” (Louwers and Ramsay et al., 2007). The 10 basic standards can be...
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...each successive year during this period. In fact, in both 1980 and 1981 the company’s actual net income eclipsed the figure reported by the company. In 1980, Oaks top executives became concerned that the company could not indefinitely sustain its impressive growth rate in annual profits. To help the company maintain this trend, the executives began creating reserves that could be used to boost reported profits in later years. To report a smooth upward earnings trend and to provide a "cushion" of profits to be used in periods of lower actual earnings, Oak implemented a policy during 1980 and 1981 of establishing unneeded reserves to be released (reversed) in later periods, if needed.1 1. Securities and Exchange Commission, Accounting and Auditing Enforcement Release No. 63, 25 June 1985. 80 EXHIBIT 1 Oak Industries, Inc., Selected Financial Data, 1978-1981 Oak Industries, Inc. These “rainy day reserves” included overstatements of the company’s...
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...personal enrichment through the deliberate misuse or misapplication of the employing org's resources or assets." Fraud - A generic term that embraces all the multifarious means that human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representation. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning, and unfair ways by that another is cheated. The only boundaries defining it are those that limit human knavery. Financial Statement Fraud - The intentional misstatement of financial statements through omission of critical facts or disclosures, misstatement of amounts, or misapplication of accepted accounting principles. ======================================================================= Types of occupational fraud and abuse: 1. Asset misappropriation (91.5%) - theft or misuse mostly committed by employees where cash is the most targeted asset 2. Corruption (30.8%) 3. Fraudulent statements (10.6%) Six Types of Fraud: 1. Employee Embezzlement (most common, taking company assets) (creating dummy companies and have employers pay for the goods that are not received) a. direct - no middleman (steal cash, inventory, tools, supplies, etc. b. indirect - usually outside of org (ex vendor) (taking bribes from vendors, customers & non-delivery of goods) 2. Management Fraud - top executives manipulating financial statements (WorldCom...
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...is this Board? Enforcement Trends The Public Company Accounting Oversight Board, otherwise known as the PCAOB, was created by the Sarbanes-Oxley Act of 2002. This board is created to make sure that all CPA firms are in compliance with the standards that have been set by SOX. The PCAOB has developed throughout the years and their primary focus is on high-risk clients and detecting fraud. When the board decides to investigate a firm, they have two types of investigations to choose from: informal and formal investigations. Generally an informal investigation starts when there is a complaint alleging or indicating that there is a violation taking place. If there is enough information and evidence obtained, then this leads to the formal investigation. After the investigation, the PCAOB has to determine whether a disciplinary proceeding will be warranted. This results when there is a violation of any rule of the board, any provision of the Sarbanes-Oxley Act, the provisions of the securities laws, or any professional standard. It is being noticed that the PCAOB has a very positive effect in the financial world since being established after huge fiscal scandals. It has been found that the PCAOB inspection process causes an improvement in the quality of audits along with significant reduction in abnormal accruals. This board has a strong enforcement process when dealing with violations. It is also safe to say that the PCAOB is an effective part of proper accounting and honest reporting...
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...considered by Deloitte and other audit firms when assessing engagement risk? How, if at all, are auditors’ professional responsibilities affected when a client proposes a higher than normal degree of engagement risk? I believe that the term “engagement risk” implies that inherent client-specific risks face an auditor throughout the course of an audit, thus creating a risk that the auditor will be unable to successfully assess and manage these risks in the performance of the engagement and properly issue an appropriate opinion. The auditor must understand these client-specific risks, which include, but are not limited to, significant events that affect the operations of the client, business risks facing the client, high-risk areas that require complex or subjective accounting treatments, and timely completion of the audit. (Louwers 112) When a client proposes a higher than normal degree of engagement risk, the focus on the auditors’ professional responsibilities becomes even more imperative, as it is critical that the auditor perform at the highest level to provide the greatest possible assurance that the financial statements are presented fairly, in all material respects. What quality control mechanisms should major accounting firms have in place to ensure that audit partners have the proper training and experience to supervise audit engagements? In any major accounting firm, ensuring that audit partners are qualified to supervise and audit engagement begins at the “top”...
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...Abstract This research paper explores the creation of the Sarbanes-Oxley Act (SOX) and the role Enron played in its enactment. Specifically, this paper will explore and discuss the Enron crisis, emphasizing the legal and ethical accounting breaches committed by the company. The purpose of SOX and the methods used to address those breaches. A discussion of the major provisions of the act including: (1) Establishment of the Oversight Board commonly referred to as the Public Company Accounting Oversight Board (PCAOB) (2) Restrictions on non-audit services (3) Rotation of audit partners (4) Auditor reports to audit committees (5) conflicts of interests (6) CEO and CFO certification of annual and quarterly reports and (7) Internal control report and auditor attestation. The necessary requirements concerning internal control for public companies. A discussion of the types of services considered unlawful if provided to a publicly held company by its auditor. A discussion of the broader impact of the act on auditors. Lastly, a discussion from the legal and ethical viewpoint of the level of success the act has had in preventing cases such as Enron. The Sarbanes-Oxley Act and Enron In any contemporary discussion of corporate governance and the erosion of trust in business, one name is unavoidable: Enron. Enron has become an icon for corporate fraud on a massive scale going to the top of the corporate hierarchy. In any attempt to restore trust, two points will have to be acknowledged...
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