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Analysis Of The Sarbanes-Oxley Act

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Recommended: Four of the implications on the financial community because of the Sarbanes-Oxley-Act

Many preparer, auditors and external users think accounting standards should have fewer rules. However, due to misconduct, improper financial reporting and accounting manipulation, more rules are being implemented(Bagshaw, 2006). Accounting standards are written in order in to achieve desired financial result.
In 2002, after the collapse of Enron, together with the big 5 auditing company, Andersen, and as the audit failure piled up, investors lost confidence in managers, companies and market intermediaries. The auditors pointed their fingers to the standard setter, FASB and the standards they have set, GAAP, and said that the rules were insufficient(Bratton, 2004). Further, Joe Berardino, managing partner of Andersen firm, stated his auditors …show more content…

It led to the consideration of changes in accounting standards in the US. In 2002, the FASB published a document seeking view on whether it should move towards a more objective-oriented principle rather than rules(FASB, 2002). The way thus prepared, the US Congress made its own call for principles when it enacted the Sarbanes-Oxley Act of 2002 (SOX), a legislation that attempts to restore confidence in the securities market, an aftermath of ENRON. Consequently, the events that led to SOX were when the stock market boomed in the mid 1990’s. Stock prices rose from mid-90’s through 2000. New entrants did IPO and resulted to a boom in the financial market. It brought billions of dollars to individuals and their savings went into the stock market(Bratton, …show more content…

Tennesse CPA Journal, 2007, wrote that 38 companies reported fraud incident in the US and 12 companies under IFRS. Based on the 10th Global Fraud Survey of Ernst and Young (2012), 16 percent reported globally that their company has experienced fraud, 21 percent in Western Europe and 9 percent in North America(EY, 2011). Furthermore, EY’s report, Overcoming compliance fatigue: reinforcing the commitment to ethical growth, 2014, stated that ten countries recorded significant increase of fraud incident, including the US with 16 percent in 2014, up from 8 percent in 2012 and 26 percent in Germany(EY, Overcoming compliance fatigue: reinforcing the commitment to ethical growth, 2014) ( see exhibit

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Accounting and auditing firm The scandal's consequences would primarily be a professional embarrassment for auditing and accounting firms. The American Institute of Certified Public Accountants quickly altered the auditing standards of the accounting profession in the United States, prompting auditors to become more proactive in combating fraud. The shareholders

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Rising share prices would simply bring more people into the markets, convinced that it was easy money. In mid-1929, the economy stumbled due to excess production in many industries, creating oversupply. Essentially, companies were able to acquire money cheaply due to high share prices and invest in their own production with the required optimism. By 1933 the value of stock on the New York Stock Exchange was less than a fifth of what it had been at its peak in 1929. Business houses closed their doors, factories shut down and banks failed.

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Everybody wanted to be part of it. Not till October 1929 when the stock market crashed. As more people invested in the stock market they hope to make a quick profit on a speculative rise in stocks (doc 5). According to doc 5 “stock prices were forced up by competitive bidding rather than by any fundamental improvement in business”. This meant people would invest in a company and when the company rises they would sell for profit.

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Named after its creators Senator Paul Sarbanes and Representative Michael Oxley, the Sarbanes–Oxley Act of 2002 (SOX) was enacted on July 30, 2002 by President George W. Bush. .Sox is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. It is widely known as the most significant reform since the formation of the Securities and Exchange Commission of 1943. Consequently major corporate scandals such as Enron, Worldcom and Tyco led to The Sarbanes Oxley Act. The act sets strict reforms to the financial practices and corporate governance of public corporations, accounting and management firms.

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1. Dodd-Frank Act: The Dodd-Frank Act which is known in full-form as Dodd-Frank Wall Street Reform and Consumer Protection Act is a type of United States federal law which will define regulation of the financial industry within the perimeter of the federal agencies. The legislation that was defined way back in July 2010, which can avoid the significant financial crisis by defining new financial regulatory methodology which can insist clarity and authorization while defining rules for protecting the financial data of several users. The Dodd-Frank Act is adopted by most of the investment banking organizations across the world. 2.

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“The trading floor of the New York Stock Exchange just after the crash of 1929”. In a single day, sixteen million shares were traded--a record--and thirty billion dollars vanished into thin air. (Cary Nelson). This ultimately led to the

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The Dodd-Frank act is an important part of the financial industry over the last 10 years. The act has introduced regulation that helps to look over and monitor banks and financial companies to help protect customer’s investments following the financial crisis. The Dodd-Frank Act was introduced and passed by Congress in 2010 to help protect consumers, regulate finance, and prevent major financial disasters. (Liu) The bill was implemented to help customers and protect markets, but it has many critiques.

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As people were induced to keep spending, companies were making more and more money, allowing them to further lower prices while improving service and merchandise selections, boosting consumer spending which in turn would bring in even more profits. It also allows more companies to get involved with the stock market, raising the price of their stocks. Following heavy advertising and well publicized successes, the general public who had never previously invested in stocks joined in looking for easy profits as they saw this was a foolproof way to prosperity because of economy's seemingly never ending growth at the time. In 1928 the stock market was booming and buying on margin became a popular but risky practice amongst investors where they would borrow money from their brokers to pay for their stocks. This was partly one of the reasons for the looming Great Depression in the upcoming years but many people were too blinded by the thrill to get rich to notice the signs that the stock market wouldn't keep soaring indefinitetly like they had

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(pbs.org, 2013) The stock market began to boom, with the Dow Jones rising nearly 33 percent. Due to the reparation of the economy, the stock market was also able to increase. The reason was because investors began to invest in businesses once again.

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The fraud triangle is made up by three distinguished elements. These elements in the fraud triangle consist of pressure, opportunity, and rationalization. The overall representation of the fraud triangle can be seen as the specific model to spot any type of high-risk unethical and fraudulent performances being conducted by a company, in this case Cendant Corporation. Cedant Corporations actions can be analyzed by the fraud triangle by the way that their senior management/top management decisions fell into the three categories of pressure, rationalization, and opportunity. Cendant Corporation had the pressure to comply with their shareholders and to maintain a stable financial status to prove that they were a profitable organization with a bright company image.

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Conclusion After reviewing the information obtained through this report, it highlights the lack of regulation and their accounting practices which took place within Lehman Brothers. The accounting practices that were used within the bank were set by the tone at the top and show that the CFO’s during the 2000’s and going forward had plenty of knowledge of the Repo 105 transactions and had no great will to do anything about. The thinking at the time seemed to be, that the company had used this accounting practice for so long, that if there was something wrong it would have come up by now no point rocking the boat.

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This three element fraud is often referred as a fraud triangle by the researchers (Cohen, Ding, Lesage & Stolowy, 2010, p. 276). On the other hand the theory of planned behavior focuses on the intentions behind the planned behavior. Ajzen (1991, p. 188) explains this as “attitude toward the behavior… refers to the degree to which a person has a favorable or unfavorable evaluation or appraisal of the behavior in question”. Cohen, Ding, Lesage & Stolowy (2010) have combined the fraud triangle and theory of planned behavior to understand that how the two theories can be collectively studied to find out the reasons behind the unethical activities that results in corporate frauds. Cohen, Ding, Lesage & Stolowy (2010) in their work studied various organizations including WorldCom and identified following: • WorldCom’s management had an excessive interest in maintaining the entity’s stock price and earning trends (p. 287).

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However, the corporate collapse of HIH Insurance in Australia has raised more questions than answers regarding the integrity of the accounting and auditing profession. The audit expectation gap is the difference between the actual performance of an auditor and what society thinks. According to the American Institute of Certified Public Accountants in 1992, the expectation gap is defined as the difference between what the public and financial users think audit responsibility is and what the auditors think their role is(?). The importance of professional scepticism is essential in enhancing the societal view on auditors. An auditor supplies the independence and objectivity to a financial report complementing the high expectations of third party users

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A) Introduction Unethical behaviors in business affect everyone since you either work in the field or are a consumer of its services. Unfortunately, almost every company usually has individuals who act unethically whether it is for their personal benefit or for the sake of the company they work for. Unethical behaviors in business might be as simple as using company property or funds for personal gain to inside trading and financial fraud. According to The Chartered Institute of Management Accountants, nearly one third of business professionals feel pressured to compromise their ethical standards and are increasingly pushed towards unethical behavior. Moreover, “misconduct is common and accepted by business services professionals, the integrity of entire economic systems is at risk”, states Jordan A. Thomas, partner and chair of the Whistleblower Representation Practice at Labaton Sucharow law firm.

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Having different accounting standards in the world is a problem for multinational public limited companies and investors in order to be able to compare and evaluate financial statements (Doupnik & Perera, 2009). Due to the economic and financial scandals and meltdown in recent years, the pressure has been increased on some countries such as United States. Therefore, it must eliminate the gap between the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP). The world of accounting diversity will have consequences on such changes, and the standard convergence of US GAAP with International Financial Reporting Standards also largely affect corporate management, investment, stock market, accounting personnel and accounting standard setters. In addition, the convergence of accounting standards will change the approach for international accounting harmonization to CPA and CFO, it affects the quality of international accounting quality standards and the effort made toward GAAP and IFRS convergence

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