Week 2 Homework: Sarbanes Oxley Act
Prof William Whitley
March 15, 2015
What are the primary goals and tenets of SOX with respect to fraud?
The Sarbanes Oxley Act has many goals of which includes improving the quality of the financial statements as well as their transparency, and eliminate fraud in order to protect the interest of investors and the public alike. SOX brought order to an industry that was self-regulated with investors and consumers relying on the honesty and integrity of the people within a company. These are the same people who have embezzled millions of dollars with shady accounting practices, keeping large debt off of the balance sheets, capitalizing instead of expensing and so forth. It was apparent that self-regulation did not work and therefore a new security measure was needed in order to protect the investors and restore public confidence in the accounting profession. In addition, SOX forces the management staff to be more accountable for fraud prevention and direction with Section 404 which requires management to “provide assertions of affective internal control over financial reporting and for the company’s independent audit firm to attest to those assertions.” (Verschoor, 2012) Although the JOBS Act of 2012 did contain a provision which allows organizations to bypass Section 404 if they meet the definition of an emerging growth company.
How is SOX enforced? According to the Public Company Accounting Oversight Board (PCAOB) website, they have the authority to take action against any registered public accounting firms if they are not in compliance with the “Sarbanes Oxley Act of 2002, any rules set forth by the PCAOB and the SEC, and other laws, rules and professional standards governing the audits of public companies, brokers and dealers.” The Securities and Exchange Commission (SEC) also enforces SOX and penalties can range from small offences to severe sanctions which can include even jail time.
What is PCAOB, its role, and based upon your individual research, is it an effective oversight body? The PCAOB is a private not-for-profit corporation which was created by the SEC in order to oversee accounting professionals. Some of the responsibilities include 1) registration of public accounting firms, 2) the establishment of auditing, quality control, ethics, independence and other standards in relation to public company audits, 3) conducting any disciplinary proceedings of registered firms, and 4) as stated above, is to enforce SOX. (SEC) The PCOAB is overseen by the SEC which approves their budget and rules, appoints and removes members as well as oversees operations. It is an affective oversight body since it provides guidance and enforcement of the rules as well as disciplinary actions against any and all offenders. It also…