This compact presentation elucidates the key elements of the Public Company Accounting Reform & Investor Protection Act, and contemporary inquires related to it, such as steps the corporations should take to comply with the Act and whether or not, the Act has solved all the problems it was intended to address? DOI: 10.13140/RG.2.1.1049.9923
This compact presentation elucidates the key elements of the Public Company Accounting Reform & Investor Protection Act, and contemporary inquires related to it, such as steps the corporations should take to comply with the Act and whether or not, the Act has solved all the problems it was intended to address? DOI: 10.13140/RG.2.1.1049.9923
How SOX changed the accounting industry when it was implemented. The background data that lead to the SOX overhaul and has it accomplished what it was drafted to do?
Topic: SOX; Type of paper: Essay; Subject: Accounting and Finance;
Academic Level: Undergraduate; Citation Style: Chicago; Language: English (U.S)
A Lubbock, Texas-based management consulting firm, Bergstein Enterprises draws on the varied knowledge of its staff to serve companies throughout Texas and eastern New Mexico in areas like operational management, human resources, finance, IT, and safety, among others. Ben Boston, CFO of Bergstein Enterprises, facilitates all fiscal reporting, utilizing experience that includes control testing in accordance with the Sarbanes-Oxley (SOX) Act.
The Securities and Exchange Commission has been entrusted with a significant corporate compliance regulatory function, which has been expanded by seminal legislation in the recent past such as the Sarbanes-Oxley (“SOX”) and Dodd-Frank Acts. This webinar discusses board fiduciary duties and the tension between state corporate law standards and federal law. Board composition, independence, structure and processes (including best practices in regard to committees) are analyzed. Specifically, director independence is discussed as is audit committees and related requirements, regulations and exemptions. NASDAQ and the NYSE also have similar requirements for director independence and those are also discussed. The webinar also covers disclosure matters related to SOX compliance, including timing and content of an issuer's periodic disclosures. Both the legal requirements and best practices related to disclosure procedures and internal controls under SOX are examined. Means of controlling the costs of SOX, especially for smaller public companies, are also discussed, including trends in the industry related to high regulatory compliance costs. Finally, the applicability and best practices for privately held companies and SOX are considered.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/securities-law-compliance-2020/
Broker-Dealer Outsourcing: Key Regulatory Issues and Strategies for ComplianceBroadridge
Due to the efficiencies and economics of outsourcing, broker-dealers are relying more and more on outsourcing for a broader range of tasks. However, because of new and stricter regulations, outsourcing presents ever-growing compliance and oversight challenges. This paper explores how to retain regulatory controls while gaining the maximum benefit from outsourcing.
IOSR Journal of Business and Management (IOSR-JBM) is an open access international journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
Avoiding Costly Fines: A 2013 Guide to Compliance MandatesSage HRMS
For more than 30 years, Sage has been a leader in the development of Human Resource Management Systems (HRMS) software. Thousands of midsized businesses nationwide have implemented our popular Sage HRMS solutions. From those experiences, we’ve learned that compliance is one of the top challenges facing any human resources department. It can be difficult to stay on top of all of the state and federal workforce laws, regulations, and reporting requirements.
It’s up to HR to ensure that hiring, discipline, and termination practices are compliant with the law. Otherwise, you could put your company at risk of incurring fines, penalties, and employee lawsuits. And mistakes can be costly. More than one-third of private companies surveyed by Chubb Insurance had experienced an employment-law event (EEOC charge filed or employee lawsuit), at an average cost of $74,400 per incident.
Sage created this guide to help you stay informed about the latest workforce compliance laws and regulations that may affect your organization. Staying abreast of current mandates enables you to communicate with and train management and employees so that the company is not at risk of expensive employee lawsuits. As with all issues with legal circumstances, the use of this material is not a substitute for the advice of a lawyer and when in doubt or for advice with respect to any specific human resources mandate please contact your lawyer. Additionally, this material is provided for informational purposes only and not for the purpose of providing legal advice.
1
Emerging Auditing Issues
By
Week 8 Assignment 4
ACC 571 Emerging Auditing Technologies
Instructor
Dr.
University
February 27, 2016
ABSTRACT
Following the numerous pre-2002 accounting scandals that bedeviled corporate America, the U.S. Congress passed the Sarbanes-Oxley Law of 2002 (SOX,2002), to prevent and deter future accounting fraud, protect investors and increase confidence in public company financial accounting reporting and ensure confidence in the US stock markets. SOX created the Public Company Accounting Oversight Board (PCAOB) charged with overseeing public company audits, setting audit standards, and investigating acts of noncompliance by auditors or audit firms. The PCAOB which is set up by the Securities and Exchange Commission under SOX, 2002 has the following responsibilities: registration of public accounting firms that audit publicly traded companies, establishing or adopting auditing, quality control, ethics, independence, and other standards relating to audits of publicly traded companies, inspecting public accounting firms, investigating registered public accounting firms and their employees, conducting disciplinary hearings, and imposing sanctions were justified, performing such other duties as necessary to promote high professional standards among registered accounting firms, and enforcing compliance with the SOX Act, 2002, the rules of the Board, professional standards, and securities laws relating to public company audits.( Kranacher, et, al 2010).
In this document attempt is made to evaluate the impact of PCAOB, herein after called the Board, in improving the reliability of audited financial statement of public companies, and assess the impact of the Board’s regulatory role on the accounting profession. The document further evaluates whether or not the Board should issue additional regulations regarding the responsibilities for corporate officers and auditors of financial statements and their impact on financial statement integrity. It looks at the impact of SOX regulation on internal control environment and speculates on the level of testing necessary to provide assurance of completeness and accuracy for CEOs to certify the company’s financial statements. The document assesses how the System Design Life Cycle model would impact the emerging issues, recommend a strategy for dealing with the emerging issues and determine the types of fraud schemes that might go undetected if these recommendations are not implemented.
Has PCAOB been effective with improving the reliability of audited financial statement for the public users of the information?
The establishment of the Public Company Accounting Oversight Board (PCAOB) in line with SOX as an independent oversight body of public company audits has ended more than 100 years of self-regulation and improved the quality and integrity of financial reporting. By shifting responsibility for external auditor relationship from.
How SOX changed the accounting industry when it was implemented. The background data that lead to the SOX overhaul and has it accomplished what it was drafted to do?
Topic: SOX; Type of paper: Essay; Subject: Accounting and Finance;
Academic Level: Undergraduate; Citation Style: Chicago; Language: English (U.S)
A Lubbock, Texas-based management consulting firm, Bergstein Enterprises draws on the varied knowledge of its staff to serve companies throughout Texas and eastern New Mexico in areas like operational management, human resources, finance, IT, and safety, among others. Ben Boston, CFO of Bergstein Enterprises, facilitates all fiscal reporting, utilizing experience that includes control testing in accordance with the Sarbanes-Oxley (SOX) Act.
The Securities and Exchange Commission has been entrusted with a significant corporate compliance regulatory function, which has been expanded by seminal legislation in the recent past such as the Sarbanes-Oxley (“SOX”) and Dodd-Frank Acts. This webinar discusses board fiduciary duties and the tension between state corporate law standards and federal law. Board composition, independence, structure and processes (including best practices in regard to committees) are analyzed. Specifically, director independence is discussed as is audit committees and related requirements, regulations and exemptions. NASDAQ and the NYSE also have similar requirements for director independence and those are also discussed. The webinar also covers disclosure matters related to SOX compliance, including timing and content of an issuer's periodic disclosures. Both the legal requirements and best practices related to disclosure procedures and internal controls under SOX are examined. Means of controlling the costs of SOX, especially for smaller public companies, are also discussed, including trends in the industry related to high regulatory compliance costs. Finally, the applicability and best practices for privately held companies and SOX are considered.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/securities-law-compliance-2020/
Broker-Dealer Outsourcing: Key Regulatory Issues and Strategies for ComplianceBroadridge
Due to the efficiencies and economics of outsourcing, broker-dealers are relying more and more on outsourcing for a broader range of tasks. However, because of new and stricter regulations, outsourcing presents ever-growing compliance and oversight challenges. This paper explores how to retain regulatory controls while gaining the maximum benefit from outsourcing.
IOSR Journal of Business and Management (IOSR-JBM) is an open access international journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
Avoiding Costly Fines: A 2013 Guide to Compliance MandatesSage HRMS
For more than 30 years, Sage has been a leader in the development of Human Resource Management Systems (HRMS) software. Thousands of midsized businesses nationwide have implemented our popular Sage HRMS solutions. From those experiences, we’ve learned that compliance is one of the top challenges facing any human resources department. It can be difficult to stay on top of all of the state and federal workforce laws, regulations, and reporting requirements.
It’s up to HR to ensure that hiring, discipline, and termination practices are compliant with the law. Otherwise, you could put your company at risk of incurring fines, penalties, and employee lawsuits. And mistakes can be costly. More than one-third of private companies surveyed by Chubb Insurance had experienced an employment-law event (EEOC charge filed or employee lawsuit), at an average cost of $74,400 per incident.
Sage created this guide to help you stay informed about the latest workforce compliance laws and regulations that may affect your organization. Staying abreast of current mandates enables you to communicate with and train management and employees so that the company is not at risk of expensive employee lawsuits. As with all issues with legal circumstances, the use of this material is not a substitute for the advice of a lawyer and when in doubt or for advice with respect to any specific human resources mandate please contact your lawyer. Additionally, this material is provided for informational purposes only and not for the purpose of providing legal advice.
1
Emerging Auditing Issues
By
Week 8 Assignment 4
ACC 571 Emerging Auditing Technologies
Instructor
Dr.
University
February 27, 2016
ABSTRACT
Following the numerous pre-2002 accounting scandals that bedeviled corporate America, the U.S. Congress passed the Sarbanes-Oxley Law of 2002 (SOX,2002), to prevent and deter future accounting fraud, protect investors and increase confidence in public company financial accounting reporting and ensure confidence in the US stock markets. SOX created the Public Company Accounting Oversight Board (PCAOB) charged with overseeing public company audits, setting audit standards, and investigating acts of noncompliance by auditors or audit firms. The PCAOB which is set up by the Securities and Exchange Commission under SOX, 2002 has the following responsibilities: registration of public accounting firms that audit publicly traded companies, establishing or adopting auditing, quality control, ethics, independence, and other standards relating to audits of publicly traded companies, inspecting public accounting firms, investigating registered public accounting firms and their employees, conducting disciplinary hearings, and imposing sanctions were justified, performing such other duties as necessary to promote high professional standards among registered accounting firms, and enforcing compliance with the SOX Act, 2002, the rules of the Board, professional standards, and securities laws relating to public company audits.( Kranacher, et, al 2010).
In this document attempt is made to evaluate the impact of PCAOB, herein after called the Board, in improving the reliability of audited financial statement of public companies, and assess the impact of the Board’s regulatory role on the accounting profession. The document further evaluates whether or not the Board should issue additional regulations regarding the responsibilities for corporate officers and auditors of financial statements and their impact on financial statement integrity. It looks at the impact of SOX regulation on internal control environment and speculates on the level of testing necessary to provide assurance of completeness and accuracy for CEOs to certify the company’s financial statements. The document assesses how the System Design Life Cycle model would impact the emerging issues, recommend a strategy for dealing with the emerging issues and determine the types of fraud schemes that might go undetected if these recommendations are not implemented.
Has PCAOB been effective with improving the reliability of audited financial statement for the public users of the information?
The establishment of the Public Company Accounting Oversight Board (PCAOB) in line with SOX as an independent oversight body of public company audits has ended more than 100 years of self-regulation and improved the quality and integrity of financial reporting. By shifting responsibility for external auditor relationship from.
Chapter 4 The Institutionalization of Business Ethics 107.docxchristinemaritza
Chapter 4: The Institutionalization of Business Ethics 107
services use the same letter grades, but use various combinations of upper- and lowercase
letters to differentiate themselves.
As early as 2003, financial analysts and the three global rating firms suspected that there
were some major problems with the way their models were assessing risk. In 2005, Standard
& Poor’s realized that its algorithm for estimating the risks associated with debt packages was
flawed. As a result, it asked for comments on improving its equations. In 2006–2007 many
governmental regulators and others started to realize what the rating agencies had known for
years: Their ratings were not very accurate. One report stated that the high ratings given to
debt were based on inadequate historical data and companies were ratings shopping between
companies so as to obtain the best rating possible. It was found that investment banks were
among some of the worst offenders, paying for ratings and therefore causing conflicts of interest.
The amount of revenue these three companies annually receive is approximately $5 billion.
Further investigations uncovered many disturbing problems. First, Moody’s, S&P’s,
and Fitch had all violated a code of conduct that required analysts to consider only credit
factors, not “‘the potential impact on Moody’s, or an issuer, an investor or other market
participant.”’ Also, these companies had become overwhelmed by an increase in the volume
and sophistication of the securities they were asked to review. Finally, analysts, faced with
less time to perform the due diligence expected of them, began to cut corners.
SEC Chairman Mary Schapiro believes that the SEC must take more drastic measures to
implement oversight for credit-rating firms—a group that was largely blamed for not catching
risky activity in the financial sector sooner. Part of the problem, as Schapiro sees it, is that
credit rating firms are paid by the securities that they rank. This creates a conflict of interest
problem, and can affect the reliability of the ratings.23 No organization is exempt from criticism
over how transparent it is. While large financial firms have received most of the fury over risk
taking and executive pay, even nonprofits are now being scrutinized more carefully.24
THE SARBANES–OXLEY ACT
In 2002, largely in response to widespread corporate accounting scandals, Congress passed
the Sarbanes–Oxley Act to establish a system of federal oversight of corporate accounting
practices. In addition to making fraudulent financial reporting a criminal offense and
strengthening penalties for corporate fraud, the law requires corporations to establish
codes of ethics for financial reporting and to develop greater transparency in financial
reporting to investors and other stakeholders.
Supported by both Republicans and Democrats, the Sarbanes–Oxley Act was enacted to
restore stakeholder confidence after accounting fraud at Enron, WorldCom, ...
Why do corporations continue to fail, regardless of the increase (or decrease) in regulatory efforts? Until management adopts a "risk-centric" stance, we will continue to repeat the sins of the past...
Explore CIMCON Software's SOX compliance solutions to streamline audit and compliance processes. Ensure regulatory adherence and strengthen financial reporting with our comprehensive tools. For more information, please visit - https://www.cimcon.com/sox-compliance-solutions
How financial reporting for public companies has changed since the E.pdfpristiegee
How financial reporting for public companies has changed since the Enron scandal in 2001.
Solution
Enron Scandal 2001
Enron a global Gas and Energy company incorporated in Omaha Nebraska and once
distinguished as the Nation’s 7th largest company. Listed on Forbs Fortune 500 as being among
the wealthiest companies listed on the stock exchange. Through this accumulation of “wealth”
Enron at one point held a robust market valuation, which was higher other large global
companies like AT&T. Many would call Enron a company that was “too big to fail”; this was
due to the company’s reported revenue milestone accomplishment of 100 billion dollars.
But what made the Enron scandal so compelling was the fact that it brought down accounting
giant Arthur Andersen too. It was a truly amazing situation, a conflation of corporate
wrongdoing which would change the accounting world forever.
Changes In Financial Reporting and Other Changes due to Enron Scandal 2001
SOX includes several gatekeeper provisions:
Requiring a company’s board of directors to have an Audit Committee composed solely of
independent directors.
Making the Audit Committee responsible for the appointment, compensation, and oversight of
the outside auditor and for establishing procedures for the confidential, anonymous submission
by company employees of concerns about accounting or auditing practices.
Creating a new agency, the Public Company Accounting Oversight Board (PCAOB), to
strengthen the outside audit function. The PCAOB sets standards involving auditing, quality
control, ethics, and audit reports and has authority to inspect, investigate, and discipline
registered public accounting firms.
Requiring attorneys who practice before the Securities and Exchange Commission (SEC) to
report material violations of the securities laws to a company’s chief legal officer or chief
executive officer. If those officers do not respond in an appropriate manner, the attorney is then
required to report the violations to the Audit Committee of the board or to another committee
composed solely of independent directors.
Enhance Regulatory Protections
Federal and state securities regulators and self-regulatory organizations play an important and
necessary role in corporate governance. They wield a broad and powerful array of sanctions, and
their enforcement actions serve as a strong deterrent against wrongdoing. The SEC’s
enforcement priorities, reflected in public speeches by its Commissioners and staff, help shape
corporate conduct.
Increase in Regulations after Sarbanes Oxley
The Sarbanes-Oxley Act initiated stringent regulations. The Act was composed of sixty-six
sections, some long and others short. Each section dealt with a different part of the reporting
cycle (Schaeffer, 2006). These sections are contained within eleven titles, primarily dealing with
the issue of internal control. The eleven titles of SOX are as follows: Public Company
Accounting Oversight Board, auditor independence, corporate respo.
Embedding compliance: how to integrate sarbanes-oxley in your projects3gamma
Internal controls are incredibly important to business operations but are often seen as something abstract and separate while they in fact should be part of business as usual and all ongoing development activities. Trying to resolve and remedy a lack of internal controls as a separate, post-event activity is not only risky – it’s also expensive. Control and assurance must be based on the business risk, be in line with external rules and regulations and be built in from the start.
Compliance Auditing in Regulatory EnvironmentsA series of high v.docxbreaksdayle
Compliance Auditing in Regulatory Environments
A series of high visibility examples of corporate fraud motivated the federal government to step in and create laws to hold corporations more accountable to the public and to their shareholders. Two of the more well-known examples are Gramm-Leach-Bliley (GLB Act) passed in 1999 and Sarbanes-Oxley Act (SOX) passed in 2002. Both of these laws have information security and privacy components that impact financial management and creation of financial statements within certain organizations.
The CFO of a large investment company that is publically traded on the American Stock Exchange is preparing for a significant external audit as part of preparing the organization for creation of the annual financial statements and report to shareholders. He hires you establish what obligations they have under the GLB and SOX laws that relate to creation of those financial statements.
Use the study materials and engage in any additional research needed to fill in knowledge gaps. Then discuss the following:
Describe the steps necessary to determine what specific criteria within the GLB and SOX laws pertain to this particular type of organization.
Identify the process that will identify how well the organization is in compliance with the criteria.
Explain the selection of team members and process steps from being hired to determine the relevant parts of GLB and SOX through reporting on the identification of compliance levels.
...
The Sarbanes-Oxlet act (SOX) was primarily enacted following the Enr.pdfnipuns1983
The Sarbanes-Oxlet act (SOX) was primarily enacted following the Enron and other scandals. It
basically sought to remove the compliance and audit gaps that may lead to the same kind or
scandals in future. This is considering the fact that these scandals lead to losses worth trillion
dollars to the investors and the general public and hurts the image of corporates and government
identically.
The SOX was enacted for US corporations and sought to tighten accounting, financial reporting
and audit practices to strengthen the basic foundations that may lead to humongous
consequences. However the basic difference was that this act only was implemented to the
corporations and management alike.
The following were the major points which impacted corporations financial reports in a way that
set a benchmark for all future compliances:
This was basically set up to oversee the funtioning of independent audit firms which do
compliance and financial audit for the specific companies. It was taken care that there the
auditors be registered and there be specific set and defined processes which should be followed.
All systems for process, compliance, quality control etc. were put in place to prevent any further
slippage and mistake.
This takes care of the utmost factor of independence of the audit firms. It seeks to minimize the
conflict of interest that may arise in the event that a particular audit firm auditing the company is
already providing some said non-audit service to the company. This is taken care of by this
provision.
This basically takes care of micro-reporting of sorts. There are enhanced reporting of all
financial transactions i.e. off-balance-sheet transactions, any stock transactions of corporate
management etc. The point also mandates strict internal controls for disclosures, and accuracy of
the financial reports. It specifies audit controls and enhanced reviews by the SEC or its agents.
This includes measures related to help and restore investor confidence. This paves way for
investor confidence in reporting of securities analyst. This also mandates disclosures of conflict
of interests is any and code of conduct for these analysts.
This consists of sections which require the SEC with the Comptroller General to report specific
findings. These reports include the effect of credit rating agencies, whether there are any
securities violations, and whether any investment banks assist the companeis to manipulate
financials. ALso reporting related to effects of consolidation of public accounting firms are
provided in this.
This seeks to provide whistle-blower protection for any information that they reveal. It mandates
penalties i.e. criminal in sense, for alteration and manipulation of financial records.
This is expecially a step ahead of point 8 in terms of the penalties. It recommends stronger and
stricter sentences and implies that any failure to properly certify financial reports is a crimilThis
section increases the criminal penalties associated.
Remote sensing and monitoring are changing the mining industry for the better. These are providing innovative solutions to long-standing challenges. Those related to exploration, extraction, and overall environmental management by mining technology companies Odisha. These technologies make use of satellite imaging, aerial photography and sensors to collect data that might be inaccessible or from hazardous locations. With the use of this technology, mining operations are becoming increasingly efficient. Let us gain more insight into the key aspects associated with remote sensing and monitoring when it comes to mining.
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Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
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Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
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1. Cost/Benefits of Sarbanes Oxley Act of
2002 (SOX)
By
Alok Singh
Abstract
Purpose
The purpose of this paper to explore the Sarbanes - Oxley Act of 2002 (SOX) and cost/benefits
of the act for organizations, society and investors. It will describe the cost incurred by the firms
due to compliance with the act and how this act is benefiting to the investor, society and also the
organizations itself.
2. Background
Public companies serve as an important role in American capitalist system. Executives and
board members of these public companies serve a key role to secure investors and
stockholders. Prior to the introduction of SOX, investors suffered significantly and incurred big
losses due to corporate failures and financial wrongdoings. Conflict of interest has been a
sensitive point in business. In many cases, for several decades, external audit firms have been
performing variety of consultancy roles for the same companies they audit which led audit
companies to become too close to the client and loose the objectivity of the audit in the push for
profitability. Economist and financiers have continuously argued that sole purpose of business
to make money. Financial scandals like Enron, Arthur Anderson and WorldCom are major
references to this argument which devastated the public interest and confidence of public on
nation’s financial markets and regulatory bodies in 2001-2002. These corporate failures raised a
big questions on the ethics of the businesses and their responsibility to the stockholders and
social welfare
The ripple effect of auditing scams, Accounting scandals and fake financial reporting shook the
business community and pushed the law makers for the tougher legislation. Congress reacted
strongly and responded to these financial crisis by passing the Sarbanes – Oxley act in July
2002.1
The sole of this act was to protect investors by attempting to improve the accuracy and
reliability of corporate disclosures. SOX was intended to address issues of accounting fraud. It
also increased the accountability of company executives and members of the board of directors.
1
Journal of Business and Economic Research – The Impact of Sarbanes- Oxley Act (October 2008)
3. President Bush who signed into the law in 2002, characterized it as “The most far reaching
reforms of American business practices since the time of Franklin Delano Roosevelt.”2
It has been nearly 12 years since passage of the Sarbanes – Oxley act but companies are still
discovering how to achieve greater efficiencies in the compliance process while adding value to
their organizations. Few companies still did not learn lessons from their past inefficient
implementation and still investing heavily to comply with the act but others gradually improving
their process and lowering down their investments on the compliance process every year.
Introduction
The Sarbanes – Oxley act of 2002 is a US federal law which sets the new and enhanced
standards for all US public companies, boards, managements and accounting firms. This act
provides the personal accountability for CEOs and CFOs, additional accountability for corporate
boards, increased criminal and civil penalties for securities violations, increased disclosures of
financial statements and certification of internal audit work done by external auditors.
The act has two core goals:
(a) Create a public institution, PCAOB (Public Company Accounting Oversight Board) to
oversee and regulate the auditing.
(b) Engage auditors more extensively in the enforcement of the existing laws against theft
and fraud by corporate officers.
2
The Law That Govern the Securities Industry; Sarbanes – Oxley Act of 2002
< http://www.sec.gov/about/laws.shtml>
4. This act has eleven sections but as far as compliance is concerned, following sections
are considered the most important:
(a) Section 302: Corporate responsibility for financial reports3
(b) Section 401: Disclosures in periodic reports4
(c) Section 404: Management assessment of internal controls5
(d) Section 409: Real time issuer disclosures6
(e) Section 802: Criminal penalties for altering documents7
Section 404 requires management to:
• Evaluate and conclude on the effectiveness of internal control over Financial
Reporting annually.
• Report on the effectiveness of internal control over financial reporting in the
annual Form 10 – K.
Section 404 also requires the independent auditor to:
• Report on the effectiveness of the company’s internal control over financial
reporting as of year –end in the annual form 10 – K.
Following are the companies approach to comply with section 404 of SOX:
3
Public Law 107-204 (July 30,2002): Title III – Corporate Responsibility
<http://www.sec.gov/about/laws/soa2002.pdf>
4
Public Law 107-204 (July 30,2002): Title IV – Enhanced Financial Disclosures
<http://www.sec.gov/about/laws/soa2002.pdf>
5
Id
6
Id
7
Public Law 107-204 (July 30,2002): Title VIII – Corporate and Criminal Fraud Accountability
<http://www.sec.gov/about/laws/soa2002.pdf>
5. • Determine planning materiality threshold and complete financial statement
line item scoping.
• Identify in – scope processes and applications.
• Perform design walkthrough in coordination with external auditors.
• Identify and assess likelihood and magnitude of risks.
• Identify key controls.
• Leverage end-to-end documentation and quarterly management self-
assessment updates.
Cost of the Sarbanes- Oxley Act
The intent of the act was to improve corporate governance and restore the faith of
investors in capitalist system but business world publicly spoke out against the act and
believed that the act of politically motivated. Various surveys and studies have
estimated that overall cost public companies have bared to comply with the SOX act,
ranged from $14 to $20 billion.8 Companies have reengineered their financial
applications which definitely have slowed down their operations as well as have cost
them big investment to comply with the act. For companies, the largest cost component
is the internal labor costs which can be made up of more than 50 percent of the total
8
Benjamin Lenhart, Sarbanes – Oxley: Smaller Companies bear the Brunt of Compliance Costs, 1(2006)
6. compliance cost – followed by the estimated portion of total audit fees, outside vendor
fees and non – labor costs.
It is clearly understood that large amount of executives’ time and company resources
are being diverted to comply with Sarbanes-Oxley Act and specifically section 404
reporting requirement. As per the Financial Executives International survey, the average
first year expenditure to comply with section 404, was $4.36 million, including $1.34
million in internal costs; $1.30 million in audit fees and $1.72 million in external costs
(consulting and software). The Sarbanes – Oxley compliance budget for small
organizations are nearly $100,000 annually, which goes up to $1million for mid-size
organizations.9
9
Sarbanes – Oxley Compliance Survey (Protiviti – 2012)
7. 10
How to Reduce the Cost
If a company can demonstrate a strong process and control environment, it can reduce
the overall scope of its internal – control evaluation. Reduced scope can mean the
company need not carry out as many internal tests and auditor may require to do less
validation which can result in lower compliance costs.
Most of the compliance work requires countless employee hours to document activities,
operational manual, revised policies and recorded control processes. This effort can be
10
Ernst & Young Survey with 225 global executives (2011) <
http://www.ey.com/Publication/vwLUAssets/Think_outside_the_SOX_box:_Transform_your_compliance_function
_for_competitive_advantage/$FILE/Thinking%20outside%20the%20box.pdf>
8. reduced by standardizing the documents with minimal changes required in the testing
activities for the same controls every year.
It is also suggested that company can reduce the number of controls to be audited by
moving from manual to automated controls. Company can reduce the cost also by
offshoring the SOX- compliance work and control testing to the lower cost vendor or
resources.
Benefits of the SOX Act
Many survey indicates that over the last decade, internal control structures have
improved. Financial reporting qualities have gone up after SOX. While compliance cost
is up front, many believes that benefits of stronger controls and regular review of
controls is appearing over time to the companies. The most notable benefits of
Sarbanes – Oxley compliance for the organizations are an enhanced understanding of
control design and operative effectiveness, internal auditor’s ability to perform more
traditional audits, and more effective and efficient operations.
As SOX went into effect, more and more executives began to see the need for internal
reforms and many were frightened by the weaknesses and gaps that compliance
reviews and assessment had exposed. Organizations constantly leveraged SOX
compliance to drive continuous improvement efforts for their internal controls.
Companies began to standardize and consolidate key financial processes, eliminate
redundant information, broaden responsibility for controls and eliminate unnecessary
controls.11 Some organizations which never focused on the documentation of the
11
Stephen Wagner, The Unexpected Benefits of Sarbanes – Oxley, Harvard Business Review, April, 2006,
9. internal controls, invested time to prepare operations and control manual, recorded
control processes and testing documents which helped new employees to understand
internal process and control quickly and efficiently.
From the perspective of auditors, stronger controls and greater understanding of the
controls benefiting auditors as well in terms of their audit efficiency.
Many of the costs and burdens related to the SOX compliance looked big only at its first
time implementation and all these cost are falling strongly over the years as processes
are getting more established and companies have improved strategies to handle their
annual SOX audits.
Approximately half of the companies believe the cost outweigh the benefits to some
extent. The internal control over financial reporting structure has improved since
compliance with Sarbanes – Oxley section 404 became a requirement.
Conclusion
After wrongdoing of business and several large scale frauds in early 2000s, SOX
introduced to empower regulators, auditors and corporate boards to reduce frauds and
improve the corporate governance. Significant modifications to the SOX’s core provision
related to internal controls – section 404, have made it less costly to implement and
hence more acceptable. Though, the compliance costs are big for the organization,
investors and public losses in corporate fraud are expected way bigger than the
compliance costs. Thus, it is hard to assess costs and benefits of the regulation
10. designed to combat fraud. Overall, SOX implementation has prevented and detected
more of the problems which gave rise to the act.
References
http://www.sec.gov/about/laws/soa2002.pdf
http://www.forbes.com/sites/hbsworkingknowledge/2014/03/10/the-costs-and-benefits-
of-sarbanes-oxley/
“SOX after ten years: A Multidisciplinary Review” (Harvard Business School)
www.pcaobus.org
http://www.protiviti.com/en-US/Documents/Surveys/2012-SOX-Compliance-Survey-
Protiviti.pdf
https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley