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Similaire à Sarbanes-Oxley Act Analysis ACC 628 Week IP
Similaire à Sarbanes-Oxley Act Analysis ACC 628 Week IP (20)
Sarbanes-Oxley Act Analysis ACC 628 Week IP
- 1. Sarbanes-Oxley Act Analysis ACC 628 Michael Shane Jones Instructor Edward Hartmann April 13, 2015
- 2. Sarbanes Oxley Act of 2002 Introduced by Definition: Passed by Congress in 2002 Introduced by Paul Sarbanes, a United States Democratic Senator from Maryland, and Michael Oxley a United States Republican Congressman from Ohio Strict reforms were mandated disclosing financial reporting Enacted to prevent fraudulently reporting financial information Responded to financial scandals such as Enron, WorldCom, and Tyco Overhaul of reporting standards Investopedia, 2015
- 3. SOX of 2002 Explanation Amend existing legislation Two key provisions Section 302 upper management required to certify financial reports accuracy Section 404 Internal controls to be established by executive management and internal auditors Costly implementation established for financial trading corporation incorporating internal controls.
- 4. SOX of 2002 Explanation Section 401 Requiring financial statements to be accurate by issuers which shall include material off balance sheet liabilities, obligations or transactions Section 409 Issuers of financial statements required disclose to general public on urgent basis any changes in financial conditions are operation changes Section 802 Penalties imposed shall be fines or up to 20 years in prison for altering, destroying, mutilating, falsifying records and documents or record with intent obstruct or impeded federal investigations.
- 5. SOX of 2002 Explanation Section 806 Whistleblower protection- Protection for those who reveal fraud and unethical business practices from retaliation Section 807 Penalties-Fraud
- 6. Before SOX Financial reporting was more lax Companies were under the radar after being apt to fraudulent financial reporting No strict enforcement of rules and regulations Clark, 2012
- 7. Scandal Enron: Rocked the financial sectors between 2001 and 2002 internal fraud revealed Enron History Created in 1985 merger between Houston Natural Gas and Inter North Merger caused Enron saddled with enormous debt Kenneth Lay, CEO of Enron, hired Jeffrey Skilling of McKinsey and Corporation implement Enron’s business plan Created gas bank gas purchases would be made various client and distributed to system clients leading to the hiring of Jeffrey Skilling Clark, 2012
- 8. Enron Scandal Andrew Fastow was hired by Skilling in 1990 become a protégé who later became CFO in 1998 Prior to Fastow being appointed CFO Skilling was appointed CFO in 1996 leading to more greed and unethical business decisions. Enron Online was created in 1999, an online trading website enabled Enron to witness every business transaction being made. Increased Enron’s credit rating Invested millions internet broadband very little increase in profits boosted investor confidence high stock price masking real financial condition of Enron. Executives management less concerned profitable business deals Enron became hedge fund instead public traded corporation 2001 Enron files for bankruptcy Bankruptcy led to disclosing financial practices leading to Enron’s demise Clark, 2012
- 9. Public Company Accounting Oversight Board & Audit responsibilities Title I PCAOB non profit private sector corporation created by SOX protect investor interest oversee audits of public trading companies Audit responsibilities DISSEMINATE INTERNAL CONTROLS KNOWLEDGE ENSURE THAT OBJECTIVITY IS MAINTAINED CLARIFY EXPECTATIONS AND SECURE SUPPORT ACCORDINGLY SECURE APPROPRIATE SKILL SETS AND RESOURCES TO ADAPT TO ACCOUNTING AND DISCLOSURE REQUIREMENTS AND TO MAINTAIN THE LEVEL OF INTERNAL AUDITING FOR NON-FINANCIAL REPORTING REVIEWS Patilis, 2004
- 10. Corporate responsibility Enhanced financial disclosures Title III Sect of SOX Corporate responsibility Section 301, 302, 303, 304, 305, 306, 307, and 308 Title IV Enhanced Financial Disclosures of SOX Section 401
- 11. Analyst Conflicts of Interest Commission Resources and Authority Analyst Conflicts of Interest Title V Section 501 Treatment of securities analysts by registered securities associations and national securities exchanges. Commission Resources and Authority Title VI Section 601 Authorization of appropriations Section 602 Appearance and practice before the Commission. Section 603 Federal court authority to impose penny stock bars. Section 604 Qualifications of associated persons of brokers and dealers SEC.Gov
- 12. Studies and reports Corporate and criminal fraud accountability Title VII Studies and reports Section 701 GAO study and report regarding consolidation of public accounting firms Section 702 Commission study and report regarding credit rating agencies Section 703 Study and report on violators and violations Sec. 704. Study of enforcement actions Section 705 Study of investment banks Corporate and criminal fraud accountability Title VIII Corporate and criminal fraud accountability Section 801 Short title. Section 802 Criminal penalties for altering documents Section 803 Debts non-dischargeable if incurred in violation of securities fraud laws Section 804 Statute of limitations for securities fraud Section 805 Review of Federal Sentencing Guidelines for obstruction of justice and extensive criminal fraud Section 806 Protection for employees of publicly traded companies who provide evidence of fraud Section 807 Criminal penalties for defrauding shareholders of publicly traded companies SEC, Gov
- 13. White-collar crime penalty enhancements Corporate tax returns Title IX White-collar crime penalty enhancements Sec 901 Short title Sec 902 Attempts and conspiracies to commit criminal fraud offenses Sec 903 Criminal penalties for mail and wire fraud Sec 904 Criminal penalties for violations of the Employee Retirement Income Security Act of 1974 Sec 905 Amendment to sentencing guidelines relating to certain white-collar offenses Section 906 Corporate responsibility for financial reports Title X Corporate tax returns Sec 1001 Sense of the Senate regarding the signing of corporate tax returns by chief executive officers SEC.gov
- 14. Corporate fraud & Accountability Title X Corporate fraud and Accountability Sect 1101 Short title Sec 1102 Tampering with a record or otherwise impeding an official proceeding Sec 1103 Temporary freeze authority for the Securities and Exchange Commission Sec 1104 Amendment to the Federal Sentencing Guidelines Sec 1105 Authority of the Commission to prohibit persons from serving as officers or directors Sec 1106 Increased criminal penalties under Securities Exchange Act of 1934. Sec 1107 Retaliation against informants SEC.gov
Notes de l'éditeur
- Sarbanes and Oxley act of 2002 was introduced by Paul Sarbanes who was a U.S. Democratic senator from Maryland and Michael Oxley a U.S Representative from Ohio in 2002 after financial world experienced a plethora of scandals such as Enron, WorldCom, and Tyco. The laws called for strict reforms requiring mandating financial reporting disclosures. Also the enactment of law would help prevent any further fraudulent reporting of financial statements information. Another thing, the law called for a complete overhaul of reporting standards.
- Sox of 2002 was used to amend current legislation which called for two key provisions Section 302 and 404. Section 302 is a provision in Sarbanes Oxley Act made upper management responsible by certifying financial statements were true and accurate. Section 404 Internal controls to be established by executive management and internal auditors. As a result, costly implentation of standards imposed and established by SOX for financial trading corporations by incorporating internal controls
- An explanation of SOX consist of 11 sections, but here a few sections will only explained. More sections will explained later on in this presentation. Section 401 required financial statements to be accurate by issuers which can include “material off-balance sheet liabilities, obligations or transactions.” Section 409 Issuers were required to disclose to general public urgent basis about any changes financial and operation changes. Section 802 called for strict penalties to imposed fines or up to 20 years in prison for altering, destroying, mutilating, falsifying records, and documents or record with intent obstruct or impeding federal investigations
- Section 806 Whistleblower Protection gives protection those who reveal fraud and unethical business practices. No company is not allowed to retaliate in any form or fashion against those employees who provide information Section 807 Penalties and Fraud states anyone who knowingly executes a scheme to individuals who are involved with issuers of securities under section 12 of SEC act of 1934 or required to file reports under Section 15(d).
- Before SOX, there were regulations and standards required to meet, but financial reporting more lax compared today’s standards. Companies were scrutinized for being apt or under the radar for engaging in fraudulently financial reporting. If companies chose to engage in unethical business practices, there was strict enforcement of rules and regulation thus companies were not obligated to be in compliance.
- There were a number of scandals which led to Sox of 2002 law being enacted such as WorldCom and Tyco, but the most significant scandal, Enron, gained the most notable. The Enron scandal rocked the financial sector 2001 – 2002 when Enron filed for bankruptcy leading to discovery of internal fraud within the Enron’s upper management. In 1985, Houston Gas and InterNorth merged leaving Enron with a enormous amount of debt. Kenneth Lay, the CEO of Enron hired Jeffrey Skilling of McKinsey & Co implement Enron’s business plan. Jeffery Skilling create a “gas bank in which gas purchases would be made by various clients then distributed to system clients. The system was so successful Jeffrey Skilling was hired to be Enron COO (Clark, 2012).
- Andrew Fastow was hired by Skilling in 1990 become his protégé who would later become the CFO in 1998. Prior to Fastow being appointed CFO, Skilling was appoint CFO in 1996 leading to more “corporate greed and unethical business practices and decisions” for Enron. In 1999, Enron Online, an online trading website, was created enabling Enron to view and witness every business transaction being made which increased Enron’s credit rating. Afterwards, Enron invested millions into the internet broadband sector, but very little increase in profits were made from this investment. At the same time, investor confidence was boosted from the high stock price which masked the financial condition of Enron despite management being less concerned about the profitable business deals that were being made. Instead of being a public trading company, Enron become of hedge fund. In 2001, Enron filed for bankruptcy which led to the disclosure of financial practices leading to Enron’s demise (Clark, 2012).
- Implications stemming from the enactment of SOX of 2002 resulting in eleven new titles Title PCAOB a non-profit private sector corporation was created by SOX protecting investor’s interest overseeing audits of public trading companies on the financial markets. Audit responsibilities included disseminate internal controls knowledge, maintaining objectives are met by everyone within the organization, and clarify expectations and secure support accordingly. The auditor was also responsible for secure appropriate skills sets and resources to adapt to accounting and disclose requirements maintain a level of internal auditing for non financial reporting reviews (Patilis, 2004).
- Title III of SOX Corporate executives were required to sign and acknowledge that the financial reports being filed are true and accurate. Doing so took the I don’t know away from management holding them fully responsible for filing fraudulent financial statements. The signor is also responsible for establishing and maintaining the internal controls and evaluating the effectiveness of the controls in place. Title IV enhanced financial disclosures of SOX section 401 states issuers of financial statements required to be accurate without containing any errors or admit to state material information. off-balance sheet liabilities, obligations or transactions are to be included in the financial statements and required to be transparent. GAAP is also to be determined by the Commission as well.
- Title V of SOX, Treatment of securities analysts by registered securities associations and national securities exchanges, Section 501, gives analyst protection used to deal with situations involving conflict of interest when scrutiny analysts recommend security equities enabling them to provide financial information to investors. Section 501 also fosters more investor confidence while maintain security analyst independence. Retaliation is also not allowed as well. Title VI Commission Resources and Authority Section 601 give authorization to fund the commission to provided professionals to carry out the rules and standards of the Commission. Section 602 Commission can deny anyone deemed unprofessional from appearing before the Commission. Section 603 states Federal Court can prevent anyone from engaging in penny stock when alleged misconduct is evident. Section 604 Brokers and Dealers are subject to the order of the Commission when barred or suspended.
- Title VII of SOX calls for the Comptroller General of the United States conduct a study on accounting firms since 1989 present and future of all financial security markets, and identify any problems resulting in limited competition among accounting firms. TITLe VII as significant amount of sections but section 802 is the most important which states the penalties be assessed for altering any financial information provided by the issuers shall be subject to fines or up to 20 years prisonment. Plus auditors shall retain records for up to five years after the fiscal year the audit was conducted. (SEC, Gov)
- Title IX states the penalties for engaging white collar crimes shall be subject to any penalties outlined previously in Section VIII with intent to commit conspiracy. Corporate tax returns Title X states the Income tax returns of the issuer shall be signed by Chief Executive Officers. (Sec, Gov.)
- Title XI calls for 20 years in prison for those who willingly destroy, impede, alter, conceal records or documents and obstructs, impedes, official proceedings or investigation into fraud and unethical business practices. (Sec, Gov.)