The Sarbanes Oxley Act: To What Commission Is SOX Meaning?
Unit 1 Assignment
GM506
Strategic Financial Analysis
February 8, 2014
Case 1-10
A). The Sarbanes Oxley Act (SOX) refers to " the Commission" in several sections. To what Commission is SOX referring? SOX is referring to the Securities and Exchange Commission (SEC). This Commission is has the " authority to determine GAAP ( Generally Accepted Accounting Principles), and to regulate the accounting profession ( Gibson, 2013, p. 2)." Because the SEC has the authority over GAAP it also has authority over what is implicated in SOX.
B). Describe the responsibility of the " Commission" in relation to the board. The Commission has oversight of the board and will enforce authority over the Board that …show more content…
is given in SOX. ( Gibson, 2013) The commission is responsible for the appointment of the five members of the Board as well.
C). Describe the Board. The Board is known as the (PCAOB) Public Company Accounting Oversight Board and operates as a nonprofit corporation. It is given direction by the SEC and is responsible for the guidance and auditing of all public accountants and accounting firms. It oversees the audits of public firms that are subject to securities laws, and related matters, to protect investors.
D). Describe the duties of the Board. The Board oversees the auditors of companies. The Board is to adopt accounting standards and establish annual accounting support fees for the standard-setting body as well as the PCAOB. They are the disciplinarians in the accounting world. They register public accounting firms, establish or adopt standards relating to audit reports for issuers
E). Who must register the Board? The Board is registered by the SEC
F).Describe the Board 's responsibility as to the inspection of those registered with the board. They are responsible for assessing the degree of compliance in each public accounting firm as well as associates of that that firm with the Sarbanes Oxley Act. They are also to make sure they are compliant with the Board 's rules, Commission 's rules, professional standards, as far as audits are concerned and also issuance of audit reports and related matters that involve issuers. G). Describe the responsibilities of the Board in relation to auditing standards. The board oversees the audits of public companies and also holds authority over auditors and accounting firms. They are the people that deal with compliance and discipline in the case that there is an issue with compliance discovered during the auditing process. But, they must first approve their actions with the SEC. In the case that a firm does not cooperate the board has the right to suspend or bar the person from being associated with any public accounting firm. Also the board can suspend or revoke the license of the firm itself or invoke lesser sanctions if they deem appropriate.
H). Contrast the applicability of SOX to Domestic public accounting firms versus foreign public accounting firms. Domestic public accounting firms are subject to all laws and regulations of SOX and must be registered with the Board. They are subject disciplinary actions through the courts. Foreign public accounting firms are not mandated to register with the Board and are also not subject to the courts, Federal or States, based on jurisdiction, except in the case that there is a controversy between the firm and the Board.
I). Describe the recognition of accounting standards by the Commission as provided. The Commission recognizes any accounting principles established by a setting body that is a private entity with a board of trustees. These setting bodies must be funded and must have adopted ways to make changes where they are needed relevant to accounting principles that display accounting issues and business practices that may change. They must be current in accounting standards that will show any transformations in the business environment. This would be important in the case that international convergence is necessary in the public interest and for the protection of the investors. The Commission has the capacity to assist with making and keeping books, records and accounts that show accurate and fair records of assets and dispositions. Also devise and maintain a system of internal accounting controls that provide reasonable assurances.
J). Comment on the funding for:
1). The Board The funding for the Board seems to be a fair funding system as the board gives calculation of their financial needs, The one thing that seems bleak is the fact that funding is sometimes then distributed to cost incurred in the first fiscal year. This if it has been interpreted right would mean that they would be shorted funding in the long run.
2). Financial Accounting Standards Board The funding of the FASB is done by collecting from issuers of publicly traded securities. This is concerning because there is the concern of uncertainty in that method. Although the FASB has survived through this type of funding and the SEC checks for compliance of the statutes it is still shaky.
K). Describe prohibited activities of the independent auditor. Can the independent auditor perform tax services for an audit client? The prohibited activities of the independent auditor are performing, providing to issuers any non-audit services. This also mean that it is prohibited to perform tax services for an audit client . Non-audit services are only permitted if approved in advance by the audit committee of the issuer.
L). Describe management 's responsibility in relation to internal controls. Management is responsible for maintaining an adequate internal control structure and procedure for financial reporting. Contain an assessment of the internal control structure and reporting procedures for effectiveness. A detailed report of the effectiveness in this area will be required from management.
M). Speculate on why Title IV, Section 404, "Management Assessment of Internal Controls," has received substantial criticism. This section seems to be a bit off. The reason this is being said is based on the idea that management is to assess internal controls. This is the inside management and this can lead to bias and inaccurate reporting of the effectiveness of the structure and procedures. The criticism is valid and may possibly need to be revisited.
Case 2-2
A). Time, laws, regulation, and professional standards have restricted accounting practices to those that are moral, ethical, fair, and precise. Comment. It is extremely important for accounting practices to be performed by moral, ethical, fair and precise people.
The problem with this is that there are so many that can purvey that type of personality and really not be that person. Greed is a powerful thing and if someone of greed can find a loophole they will. The accounting field will not ever be fully cleared of crooked accountants and such. But the laws and regulations will help to pursue those that are crooked and punished them properly. Even those who are honest will sometimes manipulate data to get their reports to add up to what they should be. A more effective form of dealing with the issue of inaccurate data by mistake may need to be addressed. It may just be that for some reason it is not aligning the way it needs to and there may need to be adjustments made that are not able to be found. So precision may not be possible in some cases. This does not necessarily mean that the person who prepared the statements is unfair. unethical or immoral. This is why the auditing practice is in …show more content…
existence.
B). Most managers surveyed had a conservative, strict interpretation of what is moral or ethical in financial reporting. Comment. This is a scary thing based on the idea that in some cases managers that interpret things in this manner may lax if they notice that other management is not so strict. It may be that they will seek the easy way out and this could lead to demotion or the loss of the ability to be promoted. Also because they see that in some cases the data doesn 't add up they will take longer to complete reports. The accuracy will be a lot more spot on and this is good. The manager that has strict interpretation will succeed but with great challenges. The best way for the moral manager with strict interpretation to maintain level ground is to display more cooperative management skills. This will bring other management to a better level of understanding and commitment.
C). The managers surveyed exhibited a surprising agreement as to what constitutes and ethical or unethical practice. Comment. It would be best to say here that there is sincerity, or so they think, in their responses. This does not mean that they are ethical or unethical, they may feel that bending the rules a little is okay. Even though it really isn 't, bending the rules may seem trivial to the bigger issues faced in an organization. Personalities are different in each individual and this would also mean their level of ethical conduct may be as well.
D). List the five generalizations from the findings in this study relating to managing earnings.
Management of short term earnings by accounting methods were viewed as less acceptable than accomplishing the same ends by changing or manipulating operating decisions or procedures
Direction of the effect on earnings matters. Increasing earnings is judged less acceptable than reducing earnings.
Materiality matters. Short term earnings management is judged less acceptable if the earnings effect is large rather than small
The time period of effect may affect ethical judgments.
Managing short term earnings at the end of an intern quarterly reporting period is viewed as somewhat more acceptable than engaging in the same activity at the end of the annual reporting period.
The method of managing earnings has an effect. Increasing profits by offering extended credit terms is seen as less acceptable than accomplishing the same end by selling excess assets or using overtime to increase shipments.
E). Comment on management 's ability to manage earnings in the long run by influencing financial accounting. If management influences financial accounting in a postive manner the ability to manage earnings will be successful and will always be compliant and accurate for the most part. It is when management influencing financial accounting in an unethical manner or a bending of the rules, is when it will all go wrong. Bending the rules in any way will allow for the errors or inaccurate information to come back on them. It would almost have a domino effect of one thing after another going wrong. This will also cause issues with investors and stakeholders, and it will really cause issues within the organization as well as for the
management.
References
Gibson, C. (2013). Financial reporting & analysis: Using financial accounting information. (13 ed., pp. 1-73). Mason, OH.: Cengage Learning.
GM506
Strategic Financial Analysis
February 8, 2014
Case 1-10
A). The Sarbanes Oxley Act (SOX) refers to " the Commission" in several sections. To what Commission is SOX referring? SOX is referring to the Securities and Exchange Commission (SEC). This Commission is has the " authority to determine GAAP ( Generally Accepted Accounting Principles), and to regulate the accounting profession ( Gibson, 2013, p. 2)." Because the SEC has the authority over GAAP it also has authority over what is implicated in SOX.
B). Describe the responsibility of the " Commission" in relation to the board. The Commission has oversight of the board and will enforce authority over the Board that …show more content…
is given in SOX. ( Gibson, 2013) The commission is responsible for the appointment of the five members of the Board as well.
C). Describe the Board. The Board is known as the (PCAOB) Public Company Accounting Oversight Board and operates as a nonprofit corporation. It is given direction by the SEC and is responsible for the guidance and auditing of all public accountants and accounting firms. It oversees the audits of public firms that are subject to securities laws, and related matters, to protect investors.
D). Describe the duties of the Board. The Board oversees the auditors of companies. The Board is to adopt accounting standards and establish annual accounting support fees for the standard-setting body as well as the PCAOB. They are the disciplinarians in the accounting world. They register public accounting firms, establish or adopt standards relating to audit reports for issuers
E). Who must register the Board? The Board is registered by the SEC
F).Describe the Board 's responsibility as to the inspection of those registered with the board. They are responsible for assessing the degree of compliance in each public accounting firm as well as associates of that that firm with the Sarbanes Oxley Act. They are also to make sure they are compliant with the Board 's rules, Commission 's rules, professional standards, as far as audits are concerned and also issuance of audit reports and related matters that involve issuers. G). Describe the responsibilities of the Board in relation to auditing standards. The board oversees the audits of public companies and also holds authority over auditors and accounting firms. They are the people that deal with compliance and discipline in the case that there is an issue with compliance discovered during the auditing process. But, they must first approve their actions with the SEC. In the case that a firm does not cooperate the board has the right to suspend or bar the person from being associated with any public accounting firm. Also the board can suspend or revoke the license of the firm itself or invoke lesser sanctions if they deem appropriate.
H). Contrast the applicability of SOX to Domestic public accounting firms versus foreign public accounting firms. Domestic public accounting firms are subject to all laws and regulations of SOX and must be registered with the Board. They are subject disciplinary actions through the courts. Foreign public accounting firms are not mandated to register with the Board and are also not subject to the courts, Federal or States, based on jurisdiction, except in the case that there is a controversy between the firm and the Board.
I). Describe the recognition of accounting standards by the Commission as provided. The Commission recognizes any accounting principles established by a setting body that is a private entity with a board of trustees. These setting bodies must be funded and must have adopted ways to make changes where they are needed relevant to accounting principles that display accounting issues and business practices that may change. They must be current in accounting standards that will show any transformations in the business environment. This would be important in the case that international convergence is necessary in the public interest and for the protection of the investors. The Commission has the capacity to assist with making and keeping books, records and accounts that show accurate and fair records of assets and dispositions. Also devise and maintain a system of internal accounting controls that provide reasonable assurances.
J). Comment on the funding for:
1). The Board The funding for the Board seems to be a fair funding system as the board gives calculation of their financial needs, The one thing that seems bleak is the fact that funding is sometimes then distributed to cost incurred in the first fiscal year. This if it has been interpreted right would mean that they would be shorted funding in the long run.
2). Financial Accounting Standards Board The funding of the FASB is done by collecting from issuers of publicly traded securities. This is concerning because there is the concern of uncertainty in that method. Although the FASB has survived through this type of funding and the SEC checks for compliance of the statutes it is still shaky.
K). Describe prohibited activities of the independent auditor. Can the independent auditor perform tax services for an audit client? The prohibited activities of the independent auditor are performing, providing to issuers any non-audit services. This also mean that it is prohibited to perform tax services for an audit client . Non-audit services are only permitted if approved in advance by the audit committee of the issuer.
L). Describe management 's responsibility in relation to internal controls. Management is responsible for maintaining an adequate internal control structure and procedure for financial reporting. Contain an assessment of the internal control structure and reporting procedures for effectiveness. A detailed report of the effectiveness in this area will be required from management.
M). Speculate on why Title IV, Section 404, "Management Assessment of Internal Controls," has received substantial criticism. This section seems to be a bit off. The reason this is being said is based on the idea that management is to assess internal controls. This is the inside management and this can lead to bias and inaccurate reporting of the effectiveness of the structure and procedures. The criticism is valid and may possibly need to be revisited.
Case 2-2
A). Time, laws, regulation, and professional standards have restricted accounting practices to those that are moral, ethical, fair, and precise. Comment. It is extremely important for accounting practices to be performed by moral, ethical, fair and precise people.
The problem with this is that there are so many that can purvey that type of personality and really not be that person. Greed is a powerful thing and if someone of greed can find a loophole they will. The accounting field will not ever be fully cleared of crooked accountants and such. But the laws and regulations will help to pursue those that are crooked and punished them properly. Even those who are honest will sometimes manipulate data to get their reports to add up to what they should be. A more effective form of dealing with the issue of inaccurate data by mistake may need to be addressed. It may just be that for some reason it is not aligning the way it needs to and there may need to be adjustments made that are not able to be found. So precision may not be possible in some cases. This does not necessarily mean that the person who prepared the statements is unfair. unethical or immoral. This is why the auditing practice is in …show more content…
existence.
B). Most managers surveyed had a conservative, strict interpretation of what is moral or ethical in financial reporting. Comment. This is a scary thing based on the idea that in some cases managers that interpret things in this manner may lax if they notice that other management is not so strict. It may be that they will seek the easy way out and this could lead to demotion or the loss of the ability to be promoted. Also because they see that in some cases the data doesn 't add up they will take longer to complete reports. The accuracy will be a lot more spot on and this is good. The manager that has strict interpretation will succeed but with great challenges. The best way for the moral manager with strict interpretation to maintain level ground is to display more cooperative management skills. This will bring other management to a better level of understanding and commitment.
C). The managers surveyed exhibited a surprising agreement as to what constitutes and ethical or unethical practice. Comment. It would be best to say here that there is sincerity, or so they think, in their responses. This does not mean that they are ethical or unethical, they may feel that bending the rules a little is okay. Even though it really isn 't, bending the rules may seem trivial to the bigger issues faced in an organization. Personalities are different in each individual and this would also mean their level of ethical conduct may be as well.
D). List the five generalizations from the findings in this study relating to managing earnings.
Management of short term earnings by accounting methods were viewed as less acceptable than accomplishing the same ends by changing or manipulating operating decisions or procedures
Direction of the effect on earnings matters. Increasing earnings is judged less acceptable than reducing earnings.
Materiality matters. Short term earnings management is judged less acceptable if the earnings effect is large rather than small
The time period of effect may affect ethical judgments.
Managing short term earnings at the end of an intern quarterly reporting period is viewed as somewhat more acceptable than engaging in the same activity at the end of the annual reporting period.
The method of managing earnings has an effect. Increasing profits by offering extended credit terms is seen as less acceptable than accomplishing the same end by selling excess assets or using overtime to increase shipments.
E). Comment on management 's ability to manage earnings in the long run by influencing financial accounting. If management influences financial accounting in a postive manner the ability to manage earnings will be successful and will always be compliant and accurate for the most part. It is when management influencing financial accounting in an unethical manner or a bending of the rules, is when it will all go wrong. Bending the rules in any way will allow for the errors or inaccurate information to come back on them. It would almost have a domino effect of one thing after another going wrong. This will also cause issues with investors and stakeholders, and it will really cause issues within the organization as well as for the
management.
References
Gibson, C. (2013). Financial reporting & analysis: Using financial accounting information. (13 ed., pp. 1-73). Mason, OH.: Cengage Learning.