First Year of SOX Compliance: Success Fifteen plus years ago public corporations were being scrutinized due to numerous accounts of dishonesty, fraud, collusion, and lack of accountability to their investors. The cries of investors were heard and answered by the creation of the Sarbanes-Oxley Act of 2002 (SOX). “SOX became law on July 30, 2002, the Securities and Exchange Commission (SEC) enforces it, and the Public Company Accounting Oversight Board (PCAOB) oversees the accounting industry” (Balance, 2016). The tide was turning, and the new blubbers stemmed from the corporations themselves on how they would appropriate the money, workforce and time to ensure that all the SOX mandates were in place by December 31, 2004. One company that stood …show more content…
Trinity’s first goal was to “prioritize the already started significant changes to its reporting methods by combining all business units (BU) financial information into one standardized process which involved combining four general ledger packages currently in place to one with Oracle Financials.” Oracle would “allow for timely closing of the books and the availability of the financials.” Consequently, this forward thinking company’s “planning to improve reporting effectiveness before SOX managed to save them $.5 million annually”. Additionally, Trinity “developed an Accounting Service Center (ASC) which was to be run by an independent service. Furthermore, this entity would provide centralized outsourced transaction administering for billing, accounts payables and payroll …show more content…
“The purpose and development of internal controls for a company are to communicate through documentation to external entities how they are proactively monitoring for any possible deficiencies that might arise and the systems that are in place to hinder those possible defects.” “The goal when developing internal control procedures was to first put into place as many safety controls to first prevent a weakness from establishing and testing them to rule out any gray areas that might lead to a misstatement and correct them immediately” (Layperson, 2006). Trinity spent the better part of a year doing just that by “first defining the project as a whole, second planning the project by deciding what tools would be required breaking down staff into specific teams and mapping out the train. The third was the actual documentation phase that was accomplished by a bottom-up approach to the organization’s work practice. The fourth was to identify the gaps in controls i.e. comparing the company’s current controls to the SOX required controls”. The fifth and sixth steps were to evaluate and tweak any of the control design that wasn’t meeting expectations. The systems that were now in place required
Internal controls is defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance
Trinity installed the Oracle system (EDP) which centralized their financial data of all the BUs in one system to have reliability and accountability of their financial statements. This system combined four ledgers in one system and save Trinity $.5 million annually in SOX compliance expense. This system improved their reporting process, timely closing of books, and availability of financial information. This systems left little room for misrepresentation of their financial statements which satisfied some of the SOX requirements.
There are some limitations of internal controls. One is a person knowing the system. This person knows when everything is done and how it is done he or she can find a loophole and use it to his or her advantage. Another limitation is...
Dodd-Frank and Sarbanes-Oxley Acts are important legislations in the corporate world because of their link to public and privately held companies. Sarbanes-Oxley Act was enacted to enhance transparency and accountability in publicly traded companies. On the contrary, Dodd-Frank Act was enacted to disentangle the confused web of financial service company valuations. Actually, these valuations are usually hidden by complex and unclear financial instruments. The introduction of Sarbanes-Oxley Act was fueled by recent incidents of accounting frauds by top executives of major corporations such as Enron. In contrast, Dodd-Frank Act was enacted as a response to the tendency by banks, insurance companies, hedge funds, rating agencies, and accounting companies to serve up harmful offer of ruined assets and liabilities brought by systemic non-disclosure (Anand, 2011, p.1). While these regulations have some similarities and differences, they have a strong relationship with the financial markets.
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.
Consistent accounting and financial frauds in the U.S. alerted the SEC to the imperative need for policy and corporate governance changes. The Sarbanes-Oxley Act in 2002 was enacted to encourage financial disclosures, enhance corporate responsibility, and combat fraudulent behaviour. This Act also helped create the PCAOB, which oversees the auditing practice (Stanwick & Stanwick 2009).
Without such controls it would be difficult for most business organizations like Trinity Industries with numerous locations, operations, and processes to prepare timely and accurate financial reports. Since no control system can guarantee that financial statements will not contain material errors or misstatements, an effective internal control system can reduce the risk of misstatements. Internal Controls should therefore be designed and implemented with the risk of fraud in mind and tailored to the circumstances of the company. In the case of Trinity part of the SOX project was to identify key process, by interviewing organizational members to understand how the processes and controls worked within the company, and who was responsible. With guidance from PCAOB AS No.5 they identified the gaps of controls and took steps to close them.
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.
The Sarbanes-Oxley Act is a legislation aimed at increasing the accuracy of financial statements that were issued by companies that are publicly held (Livingstone, 2011). The passing of this act was a response to some of the financial malpractices that took place at companies such as WorldCom and Enron. According to Livingstone, making ethical decisions is critical because ethical lapses can lead to severe unforeseen consequences (Livingstone, 2011). This paper will discuss the effects of the Act on the audit committees of public company boards of directors as well as outside independent audit firms. The main advantages and disadvantages of the Act and recommendations of the changes that should be made to the act will also be included.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
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.
There are 22 business units that were investigated and they thoroughly reviewed all reporting processes. Trinity Industries, hired external consultations to create and put a plan in place for a future project plan for converting their systems over to one consolidated system. It was also suggested that training should be provided to all employees, monitor controls and close any gaps. SOX, helped them identify the areas of controls and reporting weakness that needed to be focused on and corrected. After thourough review of these areas, Trinity industries consolidated their various reporting systems into one centeralized system they developed the accounting service center.
This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
In this approach, the focus will be on the internal control objectives so that the control design can be well assessed. First, the auditor will define the control measures and objectives and then find out which measures already installed meet the objectives (Tyrer, 1994).
Nowadays with the implementation of new emerging technologies, the way businesses keep this financial information has become computerised. At the moment businesses use computers with a computerised accounting system in order to perform many other new activities than what they were able to do in the past. Businesses can access financial information from different department in the organisation, access to the information through computers and find financial data very fast, being more efficient. (Beliss, 2013)