Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Sarbanes Oxley Act

Carmen Neghina & Hella Rieger

Sarbanes Oxley Act

Introduction
PCAOB
Basic content
Pros and Cons

  • Login to see the comments

Sarbanes Oxley Act

  1. 1. Carmen Neghina, Hella Rieger 2008
  2. 2. Content Overview Basic content Pros and Cons PCAOB
  3. 3. Overview
  4. 4. Overview <ul><li>Sarbanes-Oxley Act </li></ul><ul><ul><li>Public Company Accounting Reform and Investor Protection Act of 2002 </li></ul></ul><ul><ul><li>SOX or Sarbox </li></ul></ul><ul><ul><li>Financial practice & corporate governance </li></ul></ul><ul><ul><li>Senator Paul Sarbanes & Michael Oxley </li></ul></ul><ul><ul><li>Tremendous pressure on Congress </li></ul></ul><ul><ul><li> quick reaction </li></ul></ul><ul><ul><li>Public company boards, management, public accounting firms </li></ul></ul>
  5. 5. Overview <ul><li>“ The most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt“ </li></ul><ul><li>Goals: </li></ul><ul><ul><li>Overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies </li></ul></ul><ul><ul><li>Auditor independence, internal control assessment, enhanced financial disclosure </li></ul></ul><ul><li>SOX is aimed at eliminating … </li></ul><ul><li>… false disclosures </li></ul><ul><li>… undisclosed conflicts of interest between corporations and their analysts, auditors, and attorneys and between corporate directors, officers and shareholders </li></ul>
  6. 6. Content
  7. 7. PCAOB <ul><ul><li>Public Company Accounting Oversight Board </li></ul></ul><ul><ul><li>Watchdog over accounting firms </li></ul></ul><ul><ul><li>Five elected members </li></ul></ul><ul><ul><li>Funding comes from accounting firms, costs vary </li></ul></ul><ul><ul><li>Adopted three auditing standards in 2004 </li></ul></ul><ul><ul><li>PCAOB inspects the auditors at least once every three years </li></ul></ul>
  8. 8. Content <ul><li>Public Company Accounting Oversight Board </li></ul><ul><li>Auditor Independence </li></ul><ul><li>Corporate Responsibility </li></ul><ul><li>Enhanced Financial Disclosures </li></ul><ul><li>Analyst Conflict of Interest </li></ul><ul><li>Commission Resources and Authority </li></ul><ul><li>Studies and Reports </li></ul><ul><li>Corporate and Criminal Fraud Accountability </li></ul><ul><li>White Collar Crime Penalty Enhancements </li></ul><ul><li>Corporate Tax Returns </li></ul><ul><li>Corporate Fraud Accountability </li></ul>
  9. 9. SOX and Corporate Communication <ul><ul><li>State interference </li></ul></ul><ul><ul><li>Government a larger role in regulating the audit profession </li></ul></ul><ul><li>Consequences: </li></ul><ul><ul><li> the new system has to be communicated to employees </li></ul></ul><ul><ul><li> more work (resistance, dissatisfaction) </li></ul></ul><ul><ul><li> Employees have to be more controlled, which may lead to a decrease in trust </li></ul></ul><ul><ul><li> more information flow among different departments </li></ul></ul><ul><ul><li> more transparency </li></ul></ul><ul><ul><li> more corporate responsibility </li></ul></ul>
  10. 10. Pros and Cons
  11. 11. Pros <ul><ul><li>Restoring public confidence in capital markets </li></ul></ul><ul><ul><li>Strengthening corporate accounting controls </li></ul></ul><ul><ul><li>Standardized key financial processes </li></ul></ul><ul><ul><li>Elimination of redundant Information Systems </li></ul></ul><ul><ul><li>Better internal control -> accuracy of information </li></ul></ul><ul><ul><li>Increased independence between board of directors and management </li></ul></ul><ul><ul><li>Increased responsibility for financial reporters </li></ul></ul>
  12. 12. Cons <ul><ul><li>No guidance for companies </li></ul></ul><ul><ul><li>Intrusive </li></ul></ul><ul><ul><li>Competitive disadvantage vis-à-vis foreign firms </li></ul></ul><ul><ul><li>Costly, time-consuming and difficult to implement </li></ul></ul><ul><ul><li>2002: no. of companies deregistering from the public stock exchanges nearly tripled </li></ul></ul><ul><ul><li>2004: only 10 new foreign listings </li></ul></ul><ul><li>“ Reform&quot; of the accounting industry ended up being a gold mine for the very auditing firms that Congress wanted to punish, as a few mega firms thrive in a more regulated market . </li></ul><ul><li>(Wall Street Journal) </li></ul><ul><li>“ A colossal failure, poorly conceived and hastily enacted during a regulatory panic. . . . SOX supporters are dead wrong in their assessment of SOX—both logic and evidence make it clear that SOX was a costly mistake“ </li></ul><ul><li>(H. Butler & L. Ribstein) </li></ul>

×