financial scandals that have occurred in both the United States and abroad in the past decade. For many organizations, the way to rebuild shareholder confidence was to implement a fundamental framework of procedures that would ensure scandals like Enron, WorldCom and Tyco would not occur in the future. It is precisely these scandals that made corporate governance the focus of organizations worldwide. Corporate governance is defined as the principles and processes that provide the strategies on how an organization
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Sarbanes-Oxley: Benefits vs. Costs The American Competitiveness and Corporate Accountability Act of 2002, commonly referred to as the Sarbanes-Oxley Act (SOX) was enacted in response to corporate financial scandals involving companies such as Enron, WorldCom, and Tyco International. While SOX was written specifically for public companies; a few provisions, including whistleblower protection and document retention apply to all companies and nonprofit organizations (Levy, 2009). The stated purpose of
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markets. The major issues were caused by three main organizations, Enron, WorldCo, and Tyco. Enron, did not accurately record their debt obligations. They also recorded gains on internal sales amongst subsidiaries effectively overstating profits. WorldCom capitalized expenses that violated the Generally Accepted Accoutnign principles skewing creating inflated profits. Tyco’s fraud included providing unapproved loans to executives and then subsequently forgiving these debts without approval from the
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engagements. Answer: False Difficulty: Easy Whittington, Principles of Auditing, Fifteenth Edition 1 Chapter 1 The Role of the Public Accountant 9. The Sarbanes-Oxley Act requires that auditors of publicly traded companies in the United States perform an integrated audit that includes providing assurance on both the financial statements and on compliance with laws and regulations. Answer: False Difficulty: Medium 10. Auditing is frequently only a small part of the practice of local CPA firms
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Bankruptcy Examiner’s Report in Auditor Malpractice Suits A bankruptcy examiner’s report may provide a roadmap to auditors’ negligence, breach of contract, gross negligence, and / or cooperation to cover up fraud committed by the debtor management. A bankruptcy examiner is appointed by the court to investigate the debtor and the debtor’s estate for the purpose to determine if fraud, dishonesty, misconduct, incompetence, and irregularity by the
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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
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THE ARTICLE II. PROBLEM STATEMENT III. SUGGESTIONS FROM THE AUTHORS IV. RELEVANCE TO AUDITING ENVIRONMENT V. CONCLUSION I. Summary of the Article This report summarizes the article published by Gramling, Audrey A, Hermanson, Dana R, Hermanson, Heather M in the CPA journal of 2009. The main focus of the article is to show the importance of audit committee in auditing and analyze problems of small companies face in developing effective audit committee. The critical
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internal control over financial reporting; 5. Test and evaluate the operating effectiveness of the company’s internal control over financial reporting; 6. Form an opinion on the effectiveness of internal control over financial reporting. Generally, Auditing Standard No. 2 also requires auditors to perform a walkthrough for each major class of transaction. This is to ensure the auditor will acquire a better understanding of the company’s internal control over financial reporting (Pierre-Marie and Spruce
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eleven different sections that cover quite a large amount of topics. Prior to the enactment of the Sarbanes-Oxley Act, there were several highly controversial and heavily scrutinized cases of corporate fraud that included the infamous Enron, Tyco, and WorldCom. These scandals cost investors billions of dollars when the share prices of these companies collapsed after the cases were filed. These cases of fraud indicated to both the public and the government that there was not enough regulation over financial
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documents hold the trust of those who rely on accurate financial information. Once the trust is broken, it can take time to rebuild. Unfortunately, the publics’ trust in the accounting profession was shaken with several large scandals such as Enron and WorldCom, and they are still working toward repairing the damage. Investors lost faith and hesitated to invest money, which can hurt the economy. In answer to this developing crisis of faith, President Bush signed the Sarbanes-Oxley Act of 2002 (SOX)
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