...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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...Sarbanes-Oxley Act Financial Management Miriacle K. Black Belhaven University Abstract In 2002 an Act by the name of Sarbanes-Oxley was implemented following the bankruptcy of Enron, an American energy, commodities, and Service Company that was based out of Houston, Texas. This paper will discuss and describe the Sarbanes-Oxley Act; also it will answer such questions as: Why was the Sarbanes-Oxley Act enacted? What was the impact of the Sarbanes-Oxley Act? Also, my opinion of whether or not I thing this Act will somehow stop accounting practices. This Act is surely a case of one bad apple spoils a bunch. Sarbanes-Oxley Act The Sarbanes-Oxley Act is a case of one bad apple spoiling a bunch. What is meant by this statement is because of one company’s selfishness and greed; a lot of other companies now have different hoops to jump and straight lines to walk, to keep the same thing from happening again. Not to say outright that the Act is a bad thing because it’s not. When companies go bankrupt that particular company is not the only thing that is affected, these companies have investors and stockholders and they too are affected. This act will allow for such companies and their employers to stay on the straight and narrow. The Sarbanes-Oxley Act was enacted in 2002 following the bankruptcy of Enron, an energy trade company out of Houston, Texas. According to lawyershop.com, Enron kept the fact that they were billions of dollars in debt from its shareholders (Shaw, 2008)...
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...Sarbanes Oxley Act Joslin Cuthbertson Hampton University Abstract The Sarbanes-Oxley Act came into effect in July 2002 and introduced major changes to the guidelines of corporate authority and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main originators. The Sarbanes Oxley Act set a number of non-negotiable deadlines for publically traded companies to comply to. The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important section within these eleven titles is usually considered to be Section 404, which deals with internal controls. Since 2002, there has been a lot of debate about whether the act has positively or negatively affected corporate America. In this paper I have discussed the opinions of both sides of the argument. The Sarbanes-Oxley Act is a bill passed by Congress in 2002 after several corporations took actions that caused their companies to fail. These companies include Enron and WorldCom. As a result of these actions, stockholders lost confidence in the financial system. The intent of the bill is to protect investors of corporations by making the corporations accountable for any unacceptable accounting errors and practices. The Act is named after its main proponents, Senator Paul Sarbanes and Representative Michael Oxley. The Acts real name is the Public...
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...Article 1 - Carmichael Assignment (REVISED) Group 15 QUESTION 1) WHO IS THE AUTHOR OF THIS PAPER AND WHAT IS HIS POSITION (GIVE DESCRIPTION OF RESPONSIBILITIES) WITH THE PCAOB AT THE TIME OF THIS ARTICLE. The author of this paper is Douglas R. Carmichael. On April of 2003, Mr. Carmichael was appointed the first Chief Auditor and Director of Professional Standards for the Public Company Accounting Oversight Board. As such he was the primary advisor to the PCAOB on policy and technical issues relating to the auditing of public companies, including but not limited to auditing standards, registration, inspection, and thus enforcement of any mandates that are part of the Sarbanes-Oxley Act. QUESTION 2) WHAT DOES CARMICHAEL SEE AS THE UNDERLYING MISSION OF THE PCAOB? Carmichael views the underlying mission of the PCAOB to be the restoration of the public’s confidence in the auditor’s reports and findings. Accounting scandals, involving companies like Enron and WorldCom, prompted Congress to adopt the Sarbanes-Oxley Act as a means to establish control over accounting and auditing functions. A main focus of Sarbanes-Oxley was the establishment of the PCAOB. The PCAOB is a nongovernmental body, fully funded by fees collected by public and investment companies that benefit from independent audits. They are charged with overseeing the audit of public companies that are subject to SEC laws and related matters of the kind. Carmichael states that the confidence is not only...
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...Effect of Unethical Behavior Article Analysis Lindsey Davison August 26, 2013 Acc/291 Jonathan Gillen Effects on Financial Statements When the Sarbanes-Oxley Act was implemented in 2002, it impacted a lot of publically traded companies. There were many companies that were using unethical practices to boost their numbers and give the top dogs of the company’s loads of money. Companies like Enron, Tyco, and WorldCom were companies that most of us heard about getting hit the hardest once the act was put into place. The Sarbanes-Oxley Act created a Public Accounting Oversight Board to ensure that financial statements are audited according to specific standards. This makes it to where those who are in top financial positions such as Financial Executives and Chief’s are held directly responsible for what is being reported to the SEC. With that being said, the Act also makes it to where the audits aren’t in complete control of those in top positions, so they can’t audit their own work basically, which is exactly how the above mentioned corporations got away with it for so long. There have been both positive and negative effects of the Act; positive effects are that investors are more confident in making solid investments (Fass, 2003). Some negative effects are that companies are spending a lot of time, money and concentration on updating their software to be up to par on the new standards, like the Section 404 certification (Fass, 2003). Those are just minimal if you...
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...Sarbanes-Oxley Act: Cost Benefit Analysis The Sarbanes Oxley Act was signed into law by President Bush in 2002. This Act was in direct response to the accounting scandals of the early 2000s. A time that I remember very well, because I’d just graduated from college into the accounting industry, and it was in a total uproar. The Sarbanes Oxley Act (SOX) ordered a number of reforms to enhance corporate responsibility, financial disclosure, and to fight corporate and accounting fraud. This regulation also put financial as well as criminal pressure on the perpetrators, including the auditors. The Sarbanes Oxley Act (SOX) was named after two of its main architects, Senator Paul Sarbanes and Representative Michael Oxley. The SOX Act is composed of eleven titles. They are: Public Company Accounting Oversight Board, Auditor Independence, Corporate Responsibility, Enhanced Financial Disclosures, Analysis Conflicts of Interest, Commission Resources and Authority, Studies and Reports, Corporate and Criminal Fraud Accountability, White Collar Crime Penalty Enhancement, Corporate Tax Returns, and Corporate Fraud Accountability. This Act requires that top management assume responsibility for the financial records that are put out by the corporation. The have to sign off on the information before it is released. This is covered in Section 302. They are certifying that the report does not contain material untrue statements and that the statements provide a fair picture of the financial...
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...Ethical Behavior Page 2 President George W. Bush signed the Sarbanes Oxley Act into law on July 30, 2002. This law set new and enhanced standards for public companies and the boards, management and accounting firms. The Sarbanes Oxley Act also brought about considerable changes to the financial reporting and auditing practices of public companies. The act holds top executives for these companies personally responsible for the financial data and its timeliness, with non-compliance having criminal consequences. There are several ways to measure the effectiveness of SOX because effectiveness can mean different things to different people depending on their opinions on what will mean the law is actually working. The first and easiest way one might determine effectiveness is by the amount of fraud that companies have done that have actually been recovered. This determinate will never actually have a true answer because what company will openly admit that yes we have committed fraud but we have not been caught yet knowing the punishments for the crime. Since this is not plausible another way to measure effectiveness is to get feedback on its effectiveness by people who are affected by the act. The second way is measuring the investors’ confidence. Using a study by Engebretson & Meier, who question random people who were affected by SOX to measure...
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...the company’s assets and revenues, and has understated the expenses of the company, these acts are unethical behavior. Companies and individuals commit unethical behavior, for personal gain, greed, and sometimes by human error. When companies are pressured to meet certain deadlines for vendors and upper management it can lead to unethical behaviors. Auditors giving management advice concerning external audits and accounting procedures to manipulate accounting information is another form of unethical behavior (James). One of the most common acts of unethical behavior is when a member of management instructs a subordinate employee to manipulate a record for a transaction. Reporting incorrect information is unethical regardless of who is instructing the employee to do so. At no time is this appropriate behavior. Accounting principles requires companies to record their revenue for contracts only for one month. Anything outside of that one month will be recognized in the next year’s statements. Management should not instruct employees to record incorrect information to help boost revenues. This behavior is resulted from greed and personal gain. The effects of unethical behavior can result in ruining the company’s reputation and creditability with internal and external investors. However, because of unethical behaviors from accountants and largely owned companies the Sarbanes-Oxley Act has been...
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...Sarika Bond Auditing-Ambler Short Essay #2 November 3, 2009 Sarbanes-Oxley Act Provisions Publicly held companies are mandated to specific regulations of Sarbanes-Oxley Act; while privately held and non-profit companies are not specifically required to adopt the provisions of Sarbanes-Oxley Act (SOX). I don’t agree with private companies adopting the entire provision of Sarbanes-Oxley Act. I do support adopting certain parts of the Sarbanes-Oxley Act provision. It is cost prohibitive for private and nonprofit companies, especially for small private companies. Private companies and non-profit companies do not have to adopt the provision of Sarbanes-Oxley act, but they may pick and choose part of the governing principals that apply to them. There are advantages and disadvantages to adopting The Sarbanes-Oxley Act for private and non-profit companies. The advantages are that private companies that intend to go public in the future have already established an auditing committee, a whistleblower protection policy, and improved internal controls. The disadvantages are it is costly to adopt Sarbanes-Oxley Acts and requires hiring an outside independent auditor. It also creates more paperwork, such as checklist full of questions. My main argument with not adopting the entire Sarbanes-Oxley Act is that it is very costly for small private companies. “A survey of more than 300 public companies by Financial Executives International determined an average, first-year compliance...
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...Effects of Unethical Behavior Article Analysis Effects of Unethical Behavior Article Analysis Sarbanes Oxley Act was established in 2002, mandating organizations large or small to follow. “The Sarbanes Oxley Act has introduced major changes to the regulation of financial practice and corporate governance” (Sarbanes-Oxley Essential Information, 2012). The act has also changed the way financial statements have to be reported. In a Post Sarbanes Oxley Era companies need to adapt to become more relational to stay successful. The Sarbanes Oxley Act has changed the reporting of financial statements by making organizations include an internal control report. The reason for this report is for the purpose of “showing that not only the company’s financial data is accurate, but that the company has confidence in them because adequate controls are in place to safeguard financial data” (Sarbanes-Oxley Essential Information, 2012). Also at the year-end financial reports need to have an assessment of how effective the internal controls are in which the issuer’s auditing firm attest to the assessment. This happens after the auditing firm reviews the “controls, policies, and procedures during a Section 40/40 audit, which is conducted with a traditional financial audit” (Sarbanes-Oxley Essential Information, 2012). For firms to become more relational in a Post Sarbanes Oxley Era, they need to redefine the roles of each audit professional and retrain their employees to incorporate...
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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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...Unethical Practices and Behavior in Accounting Name Institution Course Tutor Date Unethical Practices and Behavior in Accounting The Sarbanes-Oxley (SOX) Act of 2002 was passed by the congress to protect investors from fraudulent accounting activities by organizations (Hart, 2009). Investors depend on the information that they receive from accountants to make investment decisions and hence if incorrect information is provided, the investors make inaccurate decisions, which could be costly. Section 302 of the SOX Act makes it mandatory for the accuracy of reported financial statements to be certified by senior management. In addition, section 404 of the Act influences the quality of the financial statements by specifying that the management should establish internal controls (Hart, 2009). However, in spite of the emphasis of the SOX Act, accountants continue to practice unethical behavior in accounting. In his article, “What Are the Causes of Ethical Lapses in Accounting?†Jagg Xaxx outlines four situations that might lead to unethical practices and behavior in accounting. Xaxx has been a writer since 1983, focusing mostly on environmental issues, Buddhist iconography, and surrealism. For more than 12 years, Xaxx worked as a cabinetmaker and in house building and renovations. Xaxx holds a PhD in art history and has in depth knowledge in different fields. In this article, Xaxx identifies four reasons why accountants engage in unethical behavior. The...
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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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...situations that might lead to unethical accounting and how we can identify some of the unethical practices in accounting. In an article that I read it talked about how when the economy is down that a lot of companies enforce ethics and make their ethical policies even better, but at the same time the article also states that when the economy is booming does it relax it ethical policies and let things pass. The Sarbanes-Oxley Act (SOX) has greatly helped to make company’s financial statements a lot better in making sure the companies are reporting all their earnings and expenses and so forth. The goal of SOX was to make companies and employees behave ethically; however, whether that has worked or not is questionable. Many argue that the implementation and ongoing requirements of Sarbanes Oxley and other laws are costly, time consuming, and as yet ineffective. Some say that SOX, “in many instances law has at best led to a culture of compliance rather than a culture of integrity. Even more disappointing is that too often the very activities Sarbanes Oxley were designed to prevent continue to slip past regulators until it is too late and the damage incurred (Hazels 2010)”. Some signs that I can think of, of a company being unethical is that they are struggling to pay back debts and these debts are not being accounted for completely or even being left off statements in order to show bigger profits and try to attract more investors. Another situation that I can think...
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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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