...Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of 2002 U.S. Senator Paul Sarbnes of Maryland and U.S. Representative Michael Oxley of Ohio followed a series of corporate failures, which inacted the SOX Act based on Enron’s bankruptcy and other key organizations such as Worldcom, Tyco, Xerox, and Adelphia who were among the United States organizations executives in the headlines for misdemeanors and multi-billion dollar reassertions," (Dembinski, Lager, Cornford, Bonvin, 2005). The Sarbanes-Oxley Act of 2002, (SOX) was incorporated to strengthen the internal improvements and oversight of corporate control. The primary purpose is to shield and protect shareholders from fradualent activities within the public sector and the stock market. The table below provides a list of a few provisions implemented in SOX Act. Section 302 | Section 401 | Section 404 | Section 409 | Section 802 | Requires that corporate administration confirm that they have assessed the financial reports. | Requires that financial reports include disclosure about any applicable off-balance sheet responsibilities that may exist. | Requires organizations to state whether or not the business's internal mechanism technique are sufficient and operative. | Requires administration to update the public of important budgetary matters when they occur, instead of waiting until the annual or quarterly report. | Imposes penalties for abuses of the SOX rules, which could lead to fines or some jail time. | A description...
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...theorld of financial accounting Sarbanes and Oxley or SOX is one of the most important pieces of legislation passed in this decade or even in the history of financial accounting. Sarbanes and Oxley brought about major changes in financial accounting which allows for more regulation of the accounting profession. It took Accounting form being looked at as a numbers game and placed more importance on the communication aspect of the profession. This essay will focus on Sarbanes and Oxley and its impact on the accounting profession as a whole. How can one piece of legislation weigh so heavily on a profession? To answer that question one has to look at the impact Sarbanes and Oxley has had on the practice of public accounting. Prior to Sarbanes and Oxley the regulation of public accounting was done internally, through organizations such as the SEC. However with the passage of Sarbanes and Oxley the profession was given an overhaul making companies more accountable. Sarbanes-Oxley was established to improve the quality and transparency of the financial statements issued by public companies. With that purpose in mind Sarbanes-Oxley developed a new board to oversee how financial statements are audited according to independent standards, the Public Company Accounting Oversight Board. This changed the game. It decreased the chance of companies falsifying financial statements, mainly because of the threat of penalties and imprisonment. In addition Sarbanes and Oxley have had a cascade effect on...
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...CLASS PROJECT GM 520: BUSINESS REGULATIONS: SARBANES-OXLEY August 14, 2006 Need a Sarbanes Oxley Compliance Plan? The Sarbanes-Oxley Act of 2002, sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley, represents the biggest change to federal securities laws in decades. Effective in 2006, all publicly-traded companies are required to submit an annual report of the effectiveness of their internal accounting controls to the SEC. It came as a result of the large corporate financial scandals involving Enron, WorldCom, Global Crossing and Arthur Andersen. Provisions of the Sarbanes Oxley Act (SOX) detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. It affects public U.S. companies and non-U.S. companies with a U.S. presence. SOX is all about corporate governance and financial disclosure. High-profile business failures culminating in a media fixation on Enron called into question the effectiveness of business’ self-regulatory process as well as the effectiveness of the audit to uphold public trust in capital markets. Legislation to address shortcomings in financial reporting was slowly progressing in Congress. The sudden collapse of WorldCom guaranteed swift congressional action. President Bush signed the Sarbanes-Oxley Act in to Law on July 22, 2002. The most significant legislation affecting the accounting profession since 1933. Developing...
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...THE SARBANES OXLEY ACT of 2002 The Sarbanes Oxley Act of 2002 was signed into law after a series of corporate financial scandals affected companies such as Enron, WorldCom, and Arthur Anderson. It provides a solid set of government rules that will discourage and punish corporate and accounting fraud and corruption by imposing severe penalties for wrongdoers, while protecting the interest of workers and shareholders. Acknowledged as the most significant change to securities laws since 1934, the Sarbanes Oxley Act, a new penal law, 18 U.S.C. $1348, became effective on July 30, 2002. The Act contains reforms for issuers of publicly traded securities, corporate board members, auditors, and lawyers. It was designed to improve the quality of financial reporting, accounting services, and independent audits (Zameeruddin, 2005). The provisions of the act apply to U.S. companies that are required to file annual reports with the Securities and Exchange Commission (SEC) as well as foreign companies that that are listed in the U.S. or are obligated to report to the SEC periodically. Title I of the Sarbanes Oxley Act stipulates that a new Public Company Accounting Oversight Board will be appointed and overseen by the SEC. The Board, which is made up of five full-time members, will oversee and investigate the audits and auditors of public companies and penalize for violations of laws, regulations, and rules. It is funded by fees to be paid by all public companies...
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...The Effects of the Sarbanes-Oxley Act There have been widespread reactions to corporate scandals which have become seemingly common in corporate America. Government reaction to these unethical corporate and accounting scandals has led to regulation and intervention. The Sarbanes-Oxley Act of 2002 is seen as a response to the lack of corporate governance present in many corporations. The Sarbanes-Oxley Act of 2002 is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called Sarbanes-Oxley, Sarbox, or SOX. This United States federal law was enacted on July 30, 2002 in response to a number of major corporate and accounting scandals, including those affecting Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. The act is administered by the Securities and Exchange Commission. It sets deadlines for compliance and publishes rules on requirements. The Act contains 11 titles; these describe specific mandates and requirements for financial reporting. Moreover, the Sarbanes-Oxley Act introduced major changes to the regulation of financial practice and corporate governance. It is seen as the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s” (Li, 1). It is extremely essential in to ensure protect to shareholders and the general public from accounting errors and fraudulent practices in an enterprise. However, with government regulation and intervention one must...
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...Sarbanes-Oxley Gabriel Mould ACC561 October 13, 2015 Dr. Janet Forney Sarbanes-Oxley Aspects of the Regulatory Environment In 2001, one of the largest corporate scandals unraveled as Enron/Andersen was accused of corporate fraud. Not long after were companies such as ImClone and Global Crossing were deemed under the same fraudulent activities and congress did very little in correcting the situations. (Larry Bumgardner, 2003) Several committees did hold hearings and a number of bills were introduced to address corporate misconduct. However, the differences between the Senate under Democratic control at the time, and the House of Representatives and White House, under Republican control, on how to address the problems were so great that no legislation appeared imminent. (Larry Bumgardner, 2003) There was a second wave of scandals that involved WorldCom and Adelphia in the summer of 2002. (Larry Bumgardner, 2003) WorldCom had $107 billion in assets but after filing in the Southern District of New York was crushed by their debt of $41 billion. WorldCom’s bankruptcy is the largest in United States history making Enron seem irrelevant. (Beltran, 2002) Three founding members and two other company executives of Adelphia were arrested on charges of looting the nation’s sixth-largest cable-television company on a massive scale. Congress along with the White House began to notice a steady decrease in the stock market which led them to call for action against these scandals...
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...OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the key components of the Sarbanes Oxley Act and its...
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...Running head: THE SARBANES-OXLEY ACT: A REVIEW OF THE LITERATURE 1 The Sarbanes-Oxley Act Matthew Gurniak University of Maryland University College Author Note This paper was prepared for AMBA 630, Section 9046, taught by Professor Wylie. Introduction American investors lost confidence in the American market, as a result of several large companies falsifying financial statements. In response to this matter, Congress passed the Sarbanes-Oxley Act (SOX) in the year of 2002 (Rehbein, 2010, p.90). Though there are many benefits that have come out of SOX, many argue that there are several issues that should be addressed. As a team we will discuss the main advantages and disadvantages of the act, the effect the act has had on CEO’s and CFO’s of publicly held companies, how the act has affected the function of internal controls within organizations, and what changes should be made to act. What Are the Main Advantages and Disadvantages of SOX? The Sarbanes-Oxley Act (SOX) has many advantages. There are repeated ethical scandals in business and the majority of the time “ethics and the law run parallel” to each other (Livingstone, 2009, P. 4). The SOX is the first step in holding companies accountable and is a model for accounting practice reform. The SOX controls auditors’ independence and responsibility by fighting business fraud and improving corporate governance. Tsui (2009) stated that “the SOX increases personal liabilities of senior management...
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...Sarbanes- Oxley Act of 2002 The Sarbanes-Oxley Act has many different effects of interest to financial service professionals in the business world. This act increase the reliability for financial statement information that financial specialist can use to get a better understanding of the financial picture of the company. Also Sarbanes-Oxley helps financial professionals look into certain conflicts of interest in companies involved in security research and investment banking. The Act mandates disclosure by the securities analysis and increase reliability for analysis recommendation. The Sarbanes-Oxley Act could prove reliability of financial statements and financial analysis even more in the future aspect of business with the growth of technology. The Sarbanes- Oxley Act of 2002 will give companies a better understand of why it’s important for the regulations and guidelines to be followed by due to increase reliability of financial statements and additional studies with potential impact. Increase Reliability of Financial Statements The Sarbanes-Oxley Act provides increase in monitoring accountants and auditors which also regulate the activities of investment bankers, investment analysis and securities researches. New rules for the Act are always in question but the breaking of the original rules leads to audit failures. The Act continues to improve the reporting of financial statements in many different ways for example the creation of the Public Accountancy Board. The...
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...Two provisions of the Sarbanes-Oxley Act: Sarbanes–Oxley Section 302: This section deals with disclosure controls. Under Sarbanes–Oxley, two separate sections came into effect, one civil (Section 302) and the other criminal (Section 906). Section 302 of the Act mandates a set of internal procedures designed to ensure accurate financial disclosure. The signing officers must certify that they are responsible for establishing and maintaining internal controls and have designed such internal controls to ensure that material information relating to the company and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared. Sarbanes-Oxley Section 401: This section deals with disclosures in periodic reports which include off-balance sheet items. Sarbanes-Oxley required the disclosure of all material off-balance sheet items. It also required an SEC study and report to better understand the extent of usage of such instruments and whether accounting principles adequately addressed these instruments. Critics argued the SEC did not take adequate steps to regulate and monitor this activity. SOX has improved investor confidence and has facilitated more accurate and reliable financial statements. The CEO and CFO are now required to unequivocally take ownership for their financial statements under Section 302, which was not the case prior to SOX. Further, auditor conflicts...
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...Patrick Chamberlain Dr. Wokukwu Intermediate Accounting October 13, 2011 Corporate Responsibility of Sarbanes Oxley Act of 2002 To first understand the corporate responsibilities of the Sarbanes Oxley Act of 2002, otherwise referred to as SOX; you first need to understand that the Act was created for. The SOX came into effect in July 2002 and it was introduced for major changes to the regulation of corporate governance and financial practice. The act was also known as the ‘Public Company Accounting Reform and investor Protection Act of 2002’ in the senate and was called ‘Corporate and Auditing Accountability and Responsibility Act’ in the house. SOX set new and enhanced standards for all united stated public company boards, management, and public accounting firms. It is named after its sponsors which are Senator Paul Sarbanes ad United States Representative Michael G. Oxley. [6] The bill was enacted as a reaction to a number of major corporate and accounting scandals. The scandals cost the investors billions of dollars because the share prices of affected companies collapsed, shook public confidence in the nation’s securities markets. These scandals do not apply to privately held companies. [6] The SOX act contains 11 titles and sections that range from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission to implement the rulings on the requirements to comply with the law. [6] The 26th chairman...
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...Effect of Unethical Behavior Article Analysis Beatrice Arnold ACC/291 February 4, 2013 James Covert Unethical Practices and Behavior The business environment can be a cause for unethical practices and behavior in accounting. An example of this can be management instructing an employee to record a transaction in an incorrect manner. It can be as simple as a company whose clients sign a contract on December 1, 2012 for the year. Then reporting the revenue for the whole year in December instead of just reporting the month of December as would be the requirement of accounting principles (Kendra, 2013). Another cause for unethical practices or behaviors can be greed. Some people will do anything, including breaking the law to get extra money. An accountant has an opportunity to “cook the books” (Xaxx, 2013) that can allow they to take a little or a lot. This is very tempting as no one seems to get hurt in the process. At times ignorance of the tax law or regulations about insider trading can be easily misunderstood by inexperienced accountants, which could cause unethical behavior without even realizing it. The role of an accountant is to use information the company provides to gather useful information about the company’s economic affairs. This can be difficult if there is a conflict of interests. If the accounting firm hired to perform a profit and loss audit finds that the information it has to report will be damaging to their client the accounting firm’s responsibility...
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...Week Three Learning Team Reflection In 2002 an Act called Sarbanes-Qxey Act was passed. It was introduced to the House a “Corporate and Auditing Accountability Responsibility, and Transparency Act of 2002” by Michael Oxley. Then passed to the Senate as the “Public Company Accounting Reforms and investor Protection Act of 2002” According to Weikipedia.com it is “An Act to protect investors by improving the accuracy and reliabilities of corporate disclosures made pursuant to the securities laws, and for other purposes such as industry behavior.” There has been quite a number of accounting scandals over the past several years. This is mainly with the large public corporations. Business scandals have gitten away with misguiding people, businesses by using channels to undereporting liabilities, overstating values such as assets, and even misdirecting funds. Company executives have the ability and unlimited access to working their diveous scheming plans around in order to steal. They can reduce customer's stocks, delay incoming revenue and more. With that said, eleven years ago, that is in 2002, the legislation introduced the Sarbanes Oxley Act. This act introduced major changes in the finance and corporate world. According to "The Sarbanes-Oxley Act Of 2002" (2003), "The Act contains sweeping reforms for issuers of publicly traded securities, auditors, corporate board members, and lawyers. It adopts tough new provisions intended to deter and punish corporate and accounting fraud...
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...Internal Controls LJB Company Name Submitted to ACCT504 Accounting & Finance: Managerial Use & Analysis School: Submitted: Executive Summary This report provides an analysis and evaluation of the internal controls at the LJB Company and what is required before going public. We will touch base on IT Governance, Sarbanes-Oxley and COBIT, highlight items that LJB is doing right as well as those items LJB is doing wrong and a few improvements along the way. Company Overview LJB Company is a distributor of equipment for the surrounding areas. LJB is said to be a relatively lean organization which means that the company looks for ways to eliminate any unnecessary resources to operate at expected levels. LJB is looking to go public in the future. Internal Controls / IT Governance / Sarbanes-Oxley What are internal controls? The internal controls for any business consist of policies and procedures designed to provide management with reasonable assurance that the company achieves its objectives and goals. For any organization, public, private or governmental, there are benefits to using internal controls. * To ensure the confidence of the organizations’ constituencies (boards, employees, patients, donors, and students). * To assure there are checks and balances wherever there’s opportunity for mistakes or miscommunications. * To mitigate information technology risk protecting confidential records. * To help monitor assets of geographically...
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...controls that are present at the company. Additional concerns include changes that may need to be made if the company goes public, best practices that should be kept, and practices that need to be altered. This letter will address the issues listed in order with a summary and conclusion at the end. Required Changes This section will cover the required changes that need to be made to conform to regulations that will need to be followed if the company decides to go public. LJB will need to conform to the Sarbanes-Oxley Act if the company decides to go public. Some key features of the act that will have to be taken to be in compliance with the act include the following; the issuance of an internal control report and have an outside auditor evaluate the soundness of the report. The auditing company may not also provide any consulting services to the company. For further information regarding the Sarbanes-Oxley Act (Commission, 2014) the web site to the S.E.C. regarding the act is included in the reference section at the end of the paper. Practices to Keep There are a few things that are being done at LJB that are good. The faith that they have in their employees is admirable. By having the accountant as the controller as well as the treasurer does streamline the process that the...
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