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Sarbanes-Oxley Act Of 2002 Summary And Analysis

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Sarbanes-Oxley Act of 2002 (SOX) Before the establishment of SOX, there was no requirements or regulations regarding the reporting of internal controls. Prior to SOX, the only reason a company had to disclose any internal control deficiencies was if the company changed auditors, otherwise it was not required. Although, public companies did have the option to report on their effectiveness of internal controls voluntarily but very few companies’ did (Balsam, Jiang, Lu, 2014). Additionally, prior to SOX, auditors were only held responsible for financial reporting if their client’s company collapsed (Elder et al. 2009). However, that all changed after the Enron, WorldCom, and Tyco accounting scandals of 2000 and 2001. These major scandals helped to establish the SOX. …show more content…

SOX was created to help investors become more confident and comfortable with their investments. SOX was established as a corporate responsibility law that is applicable to all companies documented with the Securities and Exchange Commission (SEC). The SEC’s purpose is to increase the value of financial reporting (Mundy & Owen, 2013). Additionally, SOX’s goal was to advance the reliability and accuracy of financial reporting by employing regulations and requirements regarding internal control over financial reporting. SOX consists of 11 different sections, these sections call for upper management and auditors to arrange for assurances in relation to the strategy, application, use, testing, and assessment of controls, which relates to many features of financial reporting (Mundy & Owen, 2013). Of those 11 different SOX sections, two communicate precisely to internal control over financial reporting, those sections are 302 and

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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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The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.

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Following the Great Depression, there was a dire need for regulation and full disclosure of accounting records within the securities markets. “Some feel that insufficient and misleading financial statement information led to inflated stock prices and that this contributed to the stock market crash and the subsequent depression” (Spiceland 9). When investors did not have accurate financial information at their disposal, they were prone to making poor investing decisions. The Securities & Exchange Acts of 1933 and 1934 were the first pieces of legislature to require public companies to be audited quarterly and annually. These acts were designed to restore investor confidence in the markets.

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The Board is completing an update to the Conceptual Framework for Financial Reporting in order to give it a more complete, concise and updated set of concepts to use when the Board develops or revises IFRS Standards. The Conceptual Framework for Financial Reporting describes the basic concepts and objectives of general purpose financial reporting. It underlies the preparation and presentation of financial statements for external parties. It is an empirical tool that helps the International Accounting Standards Board (IASB) develop requirements in IFRS Standards which is based on clear and regular principles (ifrs, 2018). These principles, on the other hand, must bring about the Board developing IFRS Standards that makes it necessary for entities to present more important, comparable and clear information in financial statements.

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Section 401 requires liabilities, obligations etc to be included in these financial reports. Lastly Section 404

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Before the Sarbane-Oxley Act of 2002 came into effect in the American economy, most investors and shareholders were left in the dark – most often at the mercy of big corporations whose accounting practices were largely unregulated. The act was a response to the infamous scandal of Enron, WorldCom, Tyco, and Adelphia – all of whom had unethical business practices that caused their shareholders to lose the astronomical amount of investment when their scandals made headlines. The Sarbane-Oxley Act (SOX) requires a business to implement a code of ethics for its employees, especially senior financial officers; it also requires a business rotate its financial auditors on a regular basis. (Orin, 2008) The implementation of a code of ethics aims to

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Two key provisions of SOX include Section 302, Corporate Responsibility for Financial Reports, and Section 404, Management Assessment of Internal Controls. During Trinity Industry’s first year of SOX compliance, communication and planning were instrumental in the success of year one. The Director of Finance and Accounting, Jake Farkas, reached out to several people for their input and assistance in the SOX compliance project. The steering committee was comprised of a broad spectrum of people and included the CAO, CFOs from each business unit, an employee from internal audit, KPMG and E&Y (Schultze, 2011, p. 95). By reaching out to external sources, Farkas was able to obtain a necessary baseline Gantt chart that was vital to the success of the SOX compliance as it provided visual communication that organized the phases and respective timelines.

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Financial statements include the company’s net worth based on assets and liabilities, as well as the company’s expense, earnings and operational budget. Users may use the relevant financial statements to make decision for future plan. In the beginning of 1934, Congress created the Securities and Exchange Commission (SEC) which delegates standard setting authority to the private sector. SEC was delegated responsibilities and encouraged the private sector to set the standard as the first standard setting body for the accounting (Group 1). In 2002, the Sarbanes-Oxley Act (SOX) is passed by U.S. Congress to protect shareholders and the general public form accounting errors and fraudulent practices, and to improve the accuracy of corporate disclosure.

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Introduction According to the Sarbanes-Oxley Act of 2002, the action requires that auditors report on the internal controls and financial statements of a publicly traded company. It will be the purpose of this report to provide a product that explains in detail how the audit of Bullseye company will be conducted. Furthermore, this report will also establish how the effectiveness of the managers of Bullseye will be tested based on how well they sustained internal control over the given period (Pany, 2019).

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The Sarbanes Oxley Act of 2002 was passed as a result of the large accounting scandals, in hopes to address corporate governance around the quality, integrity, transparency and reliability of financial reports and provide accountability to accounting responsibilities (Wells, 2014). This was during the same time when Tyco’s actions had come to light but shows how much this added governance was required. Tyco’s leaders, L. Dennis Kozlowski (Chief Executive Officer), Mark Swartz (Chief Financial Officer), and Mark Belnick (Principal Legal Officer), knowingly or recklessly failed to disclose loans, cash bonuses, loan forgiveness, profits from stock, related party transactions from the sale and purchase of homes and perquisites from Tyco, investors

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The Discussion of Management & section of Analysis is the SEC staff of observations’ plan. The Sarbanes Oxley Act (SOX) authorized the SEC to review entity every three years at least. Therefore, it enunciated the company’s summary and provide a notice to investors. This is aimed on the risks and challenges that could influence either the results of operations or the company’s cash flow situation.

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Due to fraud in financial reporting, the Sarbanes-Oxley Act of 2002 was passed to restore the confidence in the accounting profession, by lowering corporate scandals and unethical behavior. The act requires upper management to certify the responsibilities of the financial statements, including ensuring proper internal controls, supervising the audits of such reports, and ensuring the accuracy in those reports. SOX also increased penalties for fraudulent financial activity and increased independence for auditors. The Financial Accounting Standards Board (FASB) was established in 1973 to form standards for accounting and reporting standards for public and private companies and for non-profit organizations that follow Generally Accepted Accounting Principles (GAAP) in the United States.

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The Tax Advantages and Disadvantages of Sarbanes-Oxley The Sarbanes-Oxley Act (SOX) was marked into law in July 2002, with the express motivation behind reestablishing public trust in corporate financial proclamations. Preceding the order of Sox, investors endured huge losses because of corporate lacks brought on by financial related misbehavior. In particular, SOX was proposed to address issues of accounting extortion by endeavoring to enhance both the precision of and quality of corporate disclosures. It likewise expanded the responsibility of organization officials and individuals from the top managerial staff. The demonstration was an immediate result of people in general revulsion with a progression of financial scandals that lead to

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Corporate responsibility for financial report: Section 906 requires corporate management to certify reports filed with the SEC, such as the annual 10 and quarterly 10Q. This section also provides for criminal penalty of up to 5 million or 20 years imprison (SOX 2002). SOX legislation basically requires management of public companies to assess and report on the effectiveness of internal controls for financial reporting using recognized framework. As SOX went into effect, third party review of internal controls to comply with SOX and another to provide an audit of financial statements. If the internal audit revealed any significant deficiencies, it is required to be disclosed by the signing officers of the company. Companies found it was in their best interests to address any internal control weakness before third party

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Furthermore, the Enron case was not the only case of fraud leading up to SOX. Rather, Enron was seen as the drop that spilled the cup. As a matter of fact, some of the biggest financial scandals throughout the history of the US financial markets happened before the Sarbanes-Oxley Act.. Besides Enron, there were three other major scandals that took place near the issuance of SOX. In order to please the public and ensure that a case, such as Enron, would not occur again, Congress offered and passed the Sarbanes-Oxley Act of

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