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EFFECTS OF OF SARBANES OXLEY ACT ON COMPANIES
EFFECTS OF OF SARBANES OXLEY ACT ON COMPANIES
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Analysis of Sarbanes-Oxley – Section 404
And
Affect on Small Companies
Content
I. Executive Summary 1
II. Background Facts 2
III. Issue Stated 3
IV. Analysis 4-5
V. Conclusion 6
VI. References 7
Executive Summary
404 of Sarbanes Oxley: It’s affect on small business.
The implementation of section 404 of Sarbanes-Oxley's has presented challenges for many U.S businesses. The implementation rules and guidelines have imposed significant cost and time restraints. Small companies are disproportionately getting hit harder then the larger companies. Financially the smaller companies have disadvantage and can not take on the same rules and guidelines as large companies. The cost involved in implantation and compliance will cost small companies on average
Banks, insurance companies and mutual funds generally do not invest in the companies comprising the bottom 6 percent of market capitalization.
Small companies are not stewards of our national wealth in the same way as large companies. The risk to the economy from the collapse of a small public company is limited not only by its size, but also because the effects of such a collapse would not ripple very far out into the economy. Even a major Enron-style debacle at a small company -- indeed, even the failure of a fair percentage of such companies -- would hardly affect the wealth of the nation at all.
The cost of complying with SOX 404 impacts smaller companies disproportionately, as there is a significant fixed...
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...2,sid182_gci1189162,00.html?asrc=SS_CLA_308970&psrc=CLT_182
SOX spending is down, but CIOs still have work to do
By Linda Tucci, Senior News Writer
16 Aug 2007 | SearchCIO.com
http://searchcio.techtarget.com/news/article/0,289142,sid182_gci1268327,00.html?asrc=SS_CLA_308970&psrc=CLT_182
What’s Next In SOX 404 For Smaller Public Companies?
Page 36 The Metropolitan Corporate Counsel October 2006
Help Websites
http://www.amper.com/publications/sec-section-404-compliance.asp
http://iblsjournal.typepad.com/illinois_business_law_soc/2005/10/will_time_help_.html
http://www.amper.com/publications/sarbanes-oxley-small-businesses.asp
http://www.law.com/jsp/ihc/PubArticleFriendlyIHC.jsp?id=1146733529444
http://www.foxnews.com/story/0,2933,196044,00.html
http://www.pro2net.com/x42491.xml
http://www.sec.gov/info/smallbus/acspc/acspc-finalreport.pdf
Trinity Industries passed their SOX compliance in 2004 by applying the bottom-up approach in identifying the gaps and the lack documentation controls. Bottom-up approach looks at individual base elements of a system first and then those elements are linked together to form a larger subsystems. Trinity used this method to figure out where the material weakness for SOX compliance were and to organize a system to fix the problems. This process involved Trinity going into the BUs work environment, collecting information form the employees, observing the flow process, collecting data on the system gaps and documentation, correcting the weakness, and educating the employees in the correct process. Some of the weakness in this approach were, over
A Guide to the Sarbanes-Oxley Act of 2002 (2006). Retrieved December 16, 2009 from www.soxlaw.com
In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.
“Too big to fail” is a theory that suggests some financial institutions are so large and so powerful that their failure would be disastrous to the local and global economy, and therefore must be assisted by the government when struggles arise. Supporters of this idea argue that there are some institutions are so important that they should be the recipients of beneficial financial and economic policies from government. On the other hand, opponents express that one of the main problems that may arise is moral hazard, where a firm that receives gains from these advantageous policies will seek to profit by it, purposely taking positions that are high-risk high-return, because they are able to leverage these risks based on their given policy. Critics see the theory as counter-productive, and that banks and financial institutions should be left to fail if their risk management is not effective. Is continually bailing out these institutions considered ethical? There are many facets that must be tak...
In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
Another substantial problem with Sarbanes-Oxley and Dodd-Frank reform efforts are the misplaced ethical incentives it places on attorneys in advice on the structure of their clients. Since Sarbanes-Oxley only applies to companies traded on public markets, it substantially raises the cost of being public, and creates strong incentives to go-private for management and directors as well as a company’s legal advisors. Lawyers stand to gain substantially not only from the reduced pressures of reporting and monitoring obligations, but additionally from the substantial fees garnered in advising large-scale, multibillion dollar buy-outs. Th...
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).
On one hand, businesses must be profitable to survive and corporations must earn a higher return on the shareholders equity than would be realized if the money were deposited on a no-risk bank account. The profits that are made create trust from investors and are usually reflected in higher stock-prices, which makes it easier to grow the company further towards its goals. The profits are not only a result, but also a source of corporate competitive health and wealth. On the other hand, companies are networks of parties and people working together towards a shared goal and not merely 'economic machines'.
Big businesses “often use money as a motivator for the government to decide policies that would only benefit them. The more affluent they are, the greater are the chances that they will get their way,” (Startupbizhub.com). It is no secret that money plays a large role in politics. The American economy is overrun by a small amount of large corporations, also known as the Fortune 500. In 1988, the Fortune 500 companies had made over $2 trillion in sales alone. When the Chrysler Corporation and Continental Bank Corporation were faced with the possibility of bankruptcy, the federal government had stepped in to save them; this concept is known as the “too big to fail” doctrine. If a small business was faced with bankruptcy, the only thing government officials would be doing is putting up a bankruptcy notice. “Forces outside Congress influence what goes on inside it; in particular, if the Marxist theory is correct, Congress is influenced heavily by the economic structure of our society. those who dominate the American economy dominate Congress as well,” (Berg 214). John C. Berg proclaims that the companies who are undeniably dominating the American economy will have influence on the government, mostly the
I do not believe it would have a catastrophic effect on the Canadian sector. They have many buildings in Canada but many are privately owned. For instance, the Gore way Station power plant produces energy for Toyota (Wikipedia, 2015, n.p). In labelling SNC-Lavalin “too big to fail” SNC-Lavalin would continue to commit crimes as they think they are “untouchable”. They will not be accountable for their actions and this will tarnish the reputation of the Canadian government and Canadian businesses. This happened to the car companies in the United States and the financial sector. In the finance sector, CEOs still took massive bonuses while taking bailouts. This would cause civil discontent as in the protests of “Occupy Wall Street”. Not only would the government lose face with private sectors, but with the public sector as well. The governments may also lose a re-election due to the scandal and people may perceive the government as co-operating or encouraging these types of behaviors in the business and international
The Financial Accounting Standards Board (FASB) has issued guidelines for reporting on discontinued operations April 10,2014. The rule reduce the number of disposal companies must present as discontinued operations in their financial operations in their financial statements. But they also expand the disclosures requirements when discontinued operations are reported. (LLP, 2014)
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.
In my opinion the government spends way too much money (taxpayers money) to make sure that the bigger institutions do not fail and have a huge negative affect on the economy. The way that many people, myself included, think the government should handle this is to break the bigger institutions up into smaller ones that way we can still let the institutions go bankrupt and not have it effect our economy in a big way.
Harvard Business School case 274-116. Cooper Industries, Inc. Retrieved on August 31, 2008, from University of Phoenix, Resource, FIN/545 web site: https://mycampus.phoenix.edu/secure/resource/resource