Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
Advantage of economic globalization
Sarbanes-oxley act critique
Advantage of economic globalization
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: Advantage of economic globalization
The prospects offered by globalization and the accrued benefits from technological innovation have greatly influenced the growth of the business realm in the 21st century world. Despite the increment in success rate of businesses and expansion to global markets, financial misconduct within organizations has threatened to derail the financial success and better public investment decisions (Onyebuchi, 2011). Sprouting from this likelihood of financial misconduct and its detrimental effect, Sarbanes-Oxley Act was enacted in 2002. The genesis of this law can be traced back to a period between years 2000 and 2002 when United States was marred with a perverted upsurge in corporate accounting scandals that tainted the United States securities market and led to loss of public funds invested in listed companies. Scandals of organizations like Adelphia, Peregrine Systems, Tyco International, and Enron among others were great primers to the need for a law regulating the financial accounting profession (Orin, 2008). This paper uses Sarbanes-Oxley Act (SOX) to delineate the main aspects of the regulatory environment for corporations aimed at protecting the public from fraud. Moreover, it will evaluate the effectiveness of SOX in taming future frauds.
Financial fraud in the context of SOX is used to denote financial reporting that omits crucial information or misreports the financial stand of an organization to deliberately portray a positive outlook of the organization (Schlesinger, 2002; SOX 2004). For example, accountants might decide to classify financial information as nonfinancial with the intent of masking an accrued loss. Whether financial misreporting is done deliberately or erroneously, it constitutes financial fraud and this is the ...
... middle of paper ...
...of the United States financial securities exchange. Overall, SOX stands strong in its capacity to tame future financial fraud cases. The highly punitive measure for financial misreporting, the sanctions for individual members of board of directors if they append signature on unauthenticated reports, requirement to review internal accounting controls annually, as well as PCAOB’s control on auditing profession are great primers to an ethical financial accounting profession within corporations projecting into the future. Despite the progress and potential to improve United States securities market, the provisions of section 404 of SOX are highly limiting to small organizations and it would be a great help for growth of economy if newly listed public companies would be allowed a grace period on which not to comply with the internal account control assessment and review.
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
Taking a look at Donald Cressey’s hypotheses which is now known as the fraud triangle depicts the certain criteria for the mind frame of the fraudster. The fraud triangle is a theory that consists of perceived pressures, perceived opportunity, and rationalization. It gives us the different pressures placed on individuals that would make them consider “cooking the books.” It also demonstrates where the possible opportunity lies so that we may take precautions to eliminate the opportunity. Last, it demonstrates how a fraudster rationalizes with themselves to make committing the fraud okay. Donald Cressey believes all three elements must be present for fraud to occur. Upper management is usually the focus of financial statement fraud because financial statements are done at the management level. So in this case financial statement fraud was committed by the CEO Gregory Podlucky
It has been a decade since the Sarbanes-Oxley Act became in effect. Obviously, the SOX Act which aimed at increasing the confidence in the US capital market really has had a profound influence on public companies and public accounting firms. However, after Enron scandal which triggered the issue of SOX Act, public company lawsuits due to fraud still emerged one after another. As such, the efficacy of the 11-year-old Act has continually been questioned by professionals and public. In addition, the controversy about the cost and benefit of Sarbanes-Oxley Act has never stopped.
A possible flaw of Sarbanes-Oxley is it failed to put up any resistance in thwarting the financial crisis. While the degree to which fraudulent behavior can be traced to the roots of the Great Panic of 2007 will likely be up for eternal debate, it might be telling that Sarbanes-Oxley effectively did nothing. It seems this could indicate that stronger incentives for whistleblowers (such as Dodd-Frank and perhaps other whistleblower protection regimes) are very necessary given the extreme social costs. This conclusion may be hasty, however, given the short time period between the enactment of Sarbanes-Oxley and the crash. Not only is the status of Sarbanes-Oxley still in flux over a decade later, but one has to consider the substantial learning and switching costs associated with a regime with such a substantial ruach. Certainly, this is not to say that additional protections may in fact be necessary given the putative reluctance of lawyers to report fraud, but Sarbanes-Oxley likely needed more time to really crystalize and provide some level of predictability before it can be declared a bust.
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
The rise of Enron took ten years, and the fall only took twenty days. Enron’s fall cost its investors $35,948,344,993.501, and forced the government to intervene by passing the Sarbanes-Oxley Act (SOX) 2 in 2002. SOX was put in place as a safeguard against fraud by making executives personally responsible for any fraudulent activity, as well as making audits and financial checks more frequent and rigorous. As a result, SOX allows investors to feel more at ease, knowing that it is highly unlikely something like the Enron scandal will occur again. SOX is a protective act that is greatly beneficial to corporate America and to its investors.
The Sarbanes-Oxley Act of 2002 (SOX) was implemented because of all of the corporate scandals of the recent years were uncovered. SOX were put into place because it forces companies to pay more attention to internal controls. This system forces the company’s responsibilities on corporate executives and boards of directors to make sure that the companies’ internal controls are effective and reliable and less than one part of the law, companies must develop sound principles of control over financial reporting. The companies must continually develop and check sound principles of control over financial reporting and that the system is in working condition. Independent outside auditors must attest to the level of internal control. In addition, SOX also developed the “Public Company Accounting Oversight Board”, (PCAOB) which now establishes auditing standards and regulates auditor activity. Some corporate executives have complained about the expense and time that has involved in following the requirements but 60% of the investors believe that this is a good system and would not invest in a company that does not follow SOX.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
Giroux, G. (Winter 2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75, 4. p.1205 (34). Retrieved June 16, 2011, from Academic OneFile via Gale:
Accounting fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
The Sarbanes-Oxley Act of 2002 (SOX) was passed after the Enron scandal had been all over television headlines. It was clear that something had to be done to ensure that companies practiced and adhered to sound accounting principles and that they were verified often. SOX did just that: [it] “imposes more responsibilities on corporate executives and boards of directors to ensure that companies’ internal controls are reliable and effective”. (Weygandt, Kimmel and Kieso, 2008) SOX has increased the job demand for accountants and highlighted the importance of this department to an organization. Companies have experienced increased productivity and efficiency since the implementation of SOX requirements, as the tighter controls have force companies to audit the procedures and methods in which they record, organize, and calculate information. Many shortfalls can be easily brought to light with the new procedures, as they are more thorough and require frequent auditing. Companies that do not comply with SOX are subject to prosecution or fines from the government. SOX created the Public Company A...
For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.
The fraudulent financial reporting is the information in financial statement that will misleading, omission, and misrepresenting the users in order to attract potential investors and fulfil the shareholder’s expectation wealth. The company may has intended to use wrongly the accounting principle which related to classification, method of depreciation,
New auditing standards require members of the audit team to discuss the potential for material misstatement due to fraud. This discussion should include an exchange of ideas or “brainstorming” among the audit team members about (1) how and where they believe that an entity’s financial statements might be susceptible to material misstatement due to fraud, and (2) how management could perpetrate and conceal fraudulent financial reporting. The brainstorming can take place during audit planning or during any part of the auditors’ information gathering (and members of the audit engagement are expected to communicate about fraud risk factors throughout the audit until its completion).
Dowd (2016) runs above and beyond with the clarification to state accounting fraud incorporates the change of accounting records in regards to sales, incomes, costs and different components for a profit motive, for example, boosting organization stock prices, getting ideal financing or maintaining a strategic distance from obligation commitments. Dowd is of the feeling that covetousness, absence of straightforwardness, poor administration data and poor accounting interior controls are a couple of explanations behind accounting fraud. (Dowd,