Additionally SOX puts the accounting profession under tightened federal

Additionally sox puts the accounting profession under

This preview shows page 16 - 18 out of 23 pages.

Additionally, SOX puts the accounting profession under tightened federal oversight and establishes a regulatory board—with broad power to punish corruption—to monitor the firms and establishes stiff criminal penalties, including long jail terms, for accounting fraud. Finally, SOX changes the way the FASB is funded. Previously, about a third of FASB's annual budget came from voluntary contributions from public accounting firms, the AICPA, and about one thousand individual corporations. Under SOX, those voluntary contributions are replaced by mandatory fees from all publicly owned corporations based on their individual market capitalization. But the fees are to be collected by the PCAOB, and the SEC oversees the PCAOB. As a result, some fear that SOX has inadvertently made FASB more vulnerable to political pressure. Some have called SOX one of the most significant legislative reform packages since the New Deal of Franklin D. Roosevelt ; others have likened it to medical history, when a correct diagnosis was followed by an inappropriate or even harmful therapy such as the nineteenth­century practice of bleeding patients who were suffering from fever. This therapy 41 42 43
Image of page 16
8/19/2016 CHAPTER 1: The Development of Accounting Theory ­ Financial Accounting Theory and Analysis: Text and Cases, 11th Edition 17/23 turned out to be the opposite of what is necessary and beneficial because it weakened patients precisely when they needed strength to combat the cause of the fever. The critics of SOX see a flaw in the system in that the auditor is retained and paid by the client, thereby making the auditor beholden to the client and its management. As a consequence the auditor, though he or she might not realize it, ends up seeing things through the eyes of management. While it is still too early to determine which view will ultimately turn out to be correct, SOX will undoubtedly significantly affect the accounting profession. International Accounting Standards A truly global economy emerged during the 1990s, as many U.S. companies generated significant amounts of revenue and profits in foreign markets. Multinational companies are faced with decisions on the allocation of resources to their most efficient uses. These allocations cannot be accomplished without accurate and reliable financial information. Companies seeking capital or investment opportunities across national boundaries face cost and time issues. Capital­seeking firms must reconcile their financial statements to the accounting rules of the nation in which they are seeking capital, and investors must identify foreign reporting differences. The increasingly global economy requires that this process be simplified. Thus there is a push to harmonize international accounting standards.
Image of page 17
Image of page 18

You've reached the end of your free preview.

Want to read all 23 pages?

  • Spring '11
  • Prof.Melendez
  • Accountant, Financial Accounting Standards Board

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture