W2 Sarbanes-Oxley Act Training Manual

W2 Sarbanes-Oxley Act Training Manual - 1 Sarbanes-Oxley...

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1 Sarbanes-Oxley Act Training Manual Sarbanes-Oxley Act Training Manual Pierre Aldebot, Sara Heiss, and Brandi Murobayashi ACT 375 Joseph Kronewitter March 7, 2011
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2 Sarbanes-Oxley Act Training Manual Sarbanes-Oxley Act Training Manual The Sarbanes-Oxley Act is a regulation for any public company and must be dealt with seriously. In order to maintain integrity of ethical standards, companies must disclose information in their financial statement reporting and processes on a regular basis to the Securities Exchange Commission (SEC). Public companies are required to adhere to several regulations to ensure their operational policies are in line with the various regulations administered in order to remain in business. Sarbanes-Oxley Act of 2002 In 2002, Congress passed the Sarbanes-Oxley Act. The law was enacted on July 30, 2002 as a result of the numerous financial scandals that cost investors billions of dollars and took a toll on investor confidence (Hartman, 2005). According to Thomas, “the Enron implosion has wreaked more havoc on the accounting industry than any other case in U.S. history” (Thomas, 2002, para. 27). The behaviors of CEOs and financial officers of companies such as Enron, Adelphia, Anderson, ImClone, Rite Aid, Tyco, and WorldCom all contributed to the erosion of the public trust and brought into focus the necessity of the independence of auditors and responsibilities of accountants (Hartman, 2005). “Financial statement frauds are caused by a number of factors occurring at the same time, the most significant of which is the pressure on upper management to show earnings” (Wells, 2008, p. 267). Accounting is somewhat an arbitrary process, subject to judgment, and numbers can easily be manipulated. A debit on a company’s books can be recorded as either an asset or an
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3 Sarbanes-Oxley Act Training Manual expense, and a credit can be recorded as equity or a liability. Therefore, there is tremendous temptation to classify expenses as assets and liabilities as equity, especially when there is a need to show strong earnings (Wells, 2008). Accountants are responsible for financial reporting whereas auditors are responsible for verifying that financial statements are accurate and truthful. However, prior to the Sarbanes- Oxley Act of 2002, the SEC was concerned that a CPA firm’s non-audit services impaired their ability to perform an independent audit. They felt that the large amounts of revenues made from consulting services could sway the auditor’s opinions about the company’s financial statements According to Hartman, “ten of the top investment firms in the country had to pay fines for actions that involved conflicts of interest between research and investment banking” (2005, p. 615).
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W2 Sarbanes-Oxley Act Training Manual - 1 Sarbanes-Oxley...

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