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Sarbanes-Oxley Act Of 2002: Internal Control Concerns At Enron

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The accounting scandals that occurred at Enron and WorldCom were due in part to a lack of internal controls (Edmonds, Olds, McNair, & Tsay, 2012). Edmonds et al. (2012) stated that internal control within an organization is a process that ascertains reliable financial reporting, efficient operations, and compliance with the financial laws and regulations. In order to ensure that the internal control concerns experienced at Enron and WorldCom did not occur again, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002 (SOX) (Edmonds et al., 2012). The SOX Act requires firms to provide proof on their Securities and Exchange Commission filings of internal control mechanisms that are in place within the firms (Edmonds et al., 2012). The standards that are enforced by the SOX ACT include: control environment, risk assessment, control activities, information and communication, and monitoring. The provision that I feel provided the greatest impact is the standard where firms control their internal activities. This provision is imperative because it directly affects a firm’s “three legs of the stool.” …show more content…

All three of these legs should remain balanced in order for a firm to maintain healthy operations (Brickley et al., 2009). In this, the assignment of decision rights appears to relate to control activities because upper-level management should maintain some control over the decision-making authority of lower-level management. This control could prevent detrimental decisions from being made. Another improvement that could be made to the SOX Act that could avail avert accounting scandals is to monitor how employees are

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It is very hard to say that SOX would prevented the scandal but they would have being exposed sooner because of the Sarbanes-Oxley section and titles rules and regulation such as; Titles II the auditors partner rotation; Title III, the responsibility or reporting accurate financial corporate reports. They reported depreciation expenses of garbage trucks as a salvage values, and subjective to other assets that did not have any value. Title IV the financial disclosures of financial reports was overstated or understated in some reports to inflates a high profit margin. The Titles VIII, the alteration and destruction of records that would protect the

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Furthermore, it is the HR professionals duty to make sure the management team is fully aware on how to conduct business within the guidelines because in some cases knowingly or unknowingly laws can be broken and grave consequences will follow in suit. When we tie in the case of St. Mary's Honor Center v. Hicks legal risk management comes into play. I support the ideal that some risk management cannot be avoided by leadership and some risk taking may play a crucial role in the continuance of an organization. Although there are certain lines you should not cross and being able to cover your tracks are very important. In this case referenced, St. Mary's gave evidence as to how they made adverse employment decisions, but in the manner of doing so raised some red flags that enabled Hicks to have the opportunity for the case to eventually be heard in Supreme Court.

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As in Buck, when the plaintiff was terminated from his management position and offered a lower role in the company, here Chigurh was given the ultimatum to take an inferior position or quit. In Buck, the Court cautioned becoming involved in day-to-day business decisions and that employers hold more discretion in terminating high level employees. The McConkey Court held, “where the complaining employee is in an executive position, makes top level policy and strategic decisions, and great trust is placed in his judgment, courts must be cautious in second guessing employment decisions.” McConkey, ¶ 33. This decision gives a spot on interpretation of Chigurh’s former duties, and it is likely that the court will determine Chigurh was let go for a legitimate business

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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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It intensifies the need of internal control to ensure all financial transactions were preformed the way they were supposed to and to avoid any errors in the company’s balance book. Internal controls are required to be tested quarterly by management to evaluate their effectively. Another benefit of SOX is it reveals critical information to shareholders that help them making better investment decisions and increase their confidence and protection which then lead to more cash flowing into the market. The act also provides specific steps for CEOs and managers to follow while performing their jobs, these steps and procedures will protect these individuals from making wrong decisions and make them less accountable and vulnerable to

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This memorandum highlights significant portions of Statement on Auditing Standards (SAS) No. 115 Communication of Internal Control Related Matters Identified in an Audit and answers some questions frequently asked by accountants about SAS 115 ("The American Institute Of Certified Public Accountants", 2015). SAS 115 Highlights Here are some highlights of SAS 115. Applicability (SAS 115, 2015, para. 01). Definitions. A material weakness (SAS 115, 2015, para. 06).

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The Sarbanes-Oxley (SOX), Health Insurance Portability and Accountability Act (HIPAA) and Gramm-Leach-Bliley (GLBA) acts all revolve around safeguarding or guaranteeing that information is truthful. While each act is protecting data in separate fields there are some very clear similarities. SOX requires companies to provide accurate accounting and requires a framework that can generate financial reports that are readily verifiable with traceable source data. There are three key provisions. Section 302 makes officers responsible for the accuracy of financial statements and the strength of their procedures for financial accounting.

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The rules state that “public companies must keep an internal control report so that any action taken within the business may be monitored and controlled in case any illegal action is taking place.” The corporations must also “have an outside auditor to evaluate their internal control and report them on the audit report.” The act put a new body in place to “watch over the work of auditors of public companies, called the Public Company Accounting Oversight Board, or PCAOB.” Another provision of SOX is that “accounting firms are not allowed to audit public companies or offer certain consulting services for the same client.” With SOX in place, there are penalties for anyone who violates the act’s provisions.

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