A decade ago, fighting financial reporting fraud became the most important aspect of doing business, as large corporations filed for bankruptcy because their lack of internal controls. As a response to that lack of financial accountability, the government passed the U.S. Sarbanes-Oxley Act of 2002, with the goal in mind to restore the confidence of investors, while protecting the capital markets. The government recognized the need for corporations and businesses to have strong internal controls in place, as an important element for rebuilding confidence and trust. Section 404 of the act stresses the need to perform an annual evaluation of internal controls and procedures for financial reporting. This internal control requires for management to certify the effectiveness and accuracy of these controls.
In addition, the Sarbanes-Oxley requires for a company to hire an external auditor to complete a separate report, verifying the effectiveness of the internal controls and procedures for financial reporting. This assessment will validate the internal control structure of the company, providing management and public accountants with the confidence that the company is keeping a strong internal control structure, evaluating and correcting any deficiency of the organization’s financial reporting. It has been a decade after Sarbanes-Oxley Act of 2002, (SOX) was passed; the traditional internal audits were replaced with the required internal controls under Section 404. As the new internal controls have become routine, corporations are now considering how to better the skills of their internal audit team. SOX has increased criminal penalties and imposed maximum terms in prison for those individuals involved in various kinds of financial fraud. Wrongdoers face criminal charges over false statement certifications for those who incur in willful violations.
The Essay on The Audit Report and Internal Control Evaluation
Team D Auditing has been evaluating the evidence presented by Apollo Shoes. The audit team has developed an audit report in response to the audit and has also provided a description of the evidence, a description of the account sampling and testing procedures used, and has also given a brief description of the value of an audit report. This report is only to reflect Team D’s opinion regarding ...
The Securities and Exchange Commission has summoned for the Sarbanes-Oxley to bring to justice over two hundred cases. Financical malpractice was not tolerated under SOX, and executives restating corrections to their financial reports to comply with the new law. Restatements dropped drastically after that initial house-cleaning period, knocking down approximately 790 businesses. Peregrine Financial the company selected for this study was one of the companies in trouble. Apparently, their financial statements were in order, but audits revealed a complicated situation beneath the surface. Peregrine Financial, a futures brokerage firm used Veraja-Snelling Co. as its accounting firm. This accounting firm performed Peregrine’s financial annual audits. Veraja-Snelling was a small firm from Chicago, and prior to 2010, it was not subject to audit inspections. There was a turnaround of tables when the Wall Street Reforms extended the PCAOB’s authority to the auditors of the broker-dealers. These audits revealed that Peregrine had defrauded $100 million dollars from its customers over a twenty year period, forging bank statements, and Veraja-Snelling had never suspected the fraud.
PricewaterhouseCoopers was their auditing powerhouse, and in the year 2000, reviewed Peregrine’s books, but never made an audit. Their contract was carried out on a limited basis exclusively to lay out settlements between Peregrine and its regulators. Critics say there is much more Sarbanes-Oxley must do to change the accounting and auditing industry, stating it has not resolved the inherent tension within the industry’s “client pays” business model, that is the conflict between auditors serving the paying client and serving the greater good. Sarbanes-Oxley needs to increase competition to an oligopoly industry dominated by four large firms: Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers. Auditors have become increasingly more dependent of clients, and even though the law has limited the types of consulting accounting firms can do for their audit clients, they are free to do the profitable work of taxes. One of the concerns is that it may lead audit partners to rotate accounts after five years, while allowing audit firms to serve their clients for an indefinite period.
The Essay on Auditing a Publicly Traded Company
Share-based compensation are avenues used to give employees equity rights into a company. There are two types: stock options and restricted stock. The reasoning for employees to have share-based benefits, according to Basu (2014), “is that if they all have a stake in the value of the company's shares, they may try harder to drive sales, profits and other financial metrics that investors and ...
On the other hand Sarbanes-Oxley was not designed to ensure for corporate accountants to know everything, and cannot expect for them to regulate the law between government and corporations in the battle against fraud. Michael Oxley recently stated the Sarbanes-Oxley Act has withstood the test of time, and pointed out the corporate world has not faced any accounting corporate scandals like those in the early 2000. Senator Paul Sarbanes commented the Sarbanes-Oxley Act was approved despite corporate resistance, because it required for companies to pay for audits of their internal controls, because of the increasing costs this represented for the companies.
President Barack Obama signed the JOBS, ACT into law, designed to help small companies in raising capital and going public, allowing them to ignore the Sarbanes-Oxley’s checks on internal controls. A double edge sword when Obama tells the Justice Department and the SEC to ensure the law protects investors, yet with the JOBS, Act; Obama opened the way to financial misconduct. There are other challenges the Sarbanes-Oxley Act needs to overcome regarding the performance of auditors in the credit crisis. At present, the PCAOB is reviewing tough reforms, and facing the strong opposition from business lobbyists. Former Chief accountant at the SEC, Lynn Turner stated “Its like any legislation, it only works if you got a regulator and a cop enforcing it.
Reference
http://money.cnn.com/magazines/fortune/best-companies/2013/snapshots/57.html/retrieved from the internet on October 14,2013. http://compliancex.com/analysis-a-decade-on-sarbanes-oxley-working/retrieved from the internet on October 14, 2013.
The Business plan on Sarbanes oxley Act Of 2002
Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of 2002 Abstract The paper examines the Sarbanes-Oxley Act of 2002 that was adopted to restore confidence in accounting firms and businesses. Under this act that was signed as a response to numerous corporate and accounting scandals, the companies are required to make changes in order to ensure that their business practices are conducted with ethics, ...
