Managerial Accounting

Business

Quiz 18 :

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Quiz 18 :

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

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Briefly describe the overall intent of the Sarbanes-Oxley Act of 2002.
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Overall Intent of the Sarbanes-Oxley Act, 2002 can be described as below:
• To prevent accounting scandals
• To bring reforms in the financial reporting of the company to keep the public confidence in the Company
• To implement legal actions for fraud or misstatement in Financial Reporting
• Establish a body to audit the financials of the Company
• Establishment of Corporate Responsibility for Financial Statement
• Establishment of Internal Control in the companies to improve the reporting and recording of Financial Transactions

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Explain the nature and importance of internal controls over financial reporting.
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• Internal control is defined as a process established by the management to provide reasonable assurance to achieve effectiveness and efficiency of operations, reliability of financial statements and compliance with the laws and regulations.
• Reliability of financial information relates to the policies, process, procedures that enables stakeholders to have confidence in the organizations financial reports.
• These financial reports consist of organizations annual reports, 10k filings with SEC, tax returns filed with tax authorities and other public financial disclosures.
• In the computerized accounting systems, internal control procedures are automated.
• Large company's internal control over financial reporting comprises a vast array of policies and procedures involving hundreds of individuals.
Example:-
(a) Physical control over raw material
(b) Authorization to sing the checks etcetera.

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What is the PCAOB? Describe its mission.
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• PCAOB - It refers to Public Company Accounting Oversight Board and it is established by Title I, Section 101 of Sarbanes - Oxley Act (SOX) with five full time board members operating under the auspices of SEC.
• The mission of PCAOB is to oversee and investigate the audits and auditors of public companies and sanction both firms and individuals for violation of laws, rules and regulations.
• The auditors responsibilities in assessing and attesting a client's internal control systems are detailed in the PCAOB's auditing standard no 2. Entitled "An Audit of Internal Control over Financial Reporting Performed in Conjunction with Audit of Financial statements".

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What does SOX section 302 require of management?
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What does SOX section 404 require of management?
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Why did some managers complain about the requirements imposed by SOX sections 302 and 404?
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Can you describe any internal controls you observed in a job you have held? Alternatively, what kinds of internal controls do you think are in place at your college?
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Can the CEO of a large company really be expected to know what is going on at all levels in the organization? In various court cases, CEOs have argued that they could not be held accountable for the actions of others in their companies. As a group, stage an in-class debate about this issue.
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Go online and use Google or another search engine to find several current news articles about SOX. Read three of these articles, and then summarize them for your classmates.
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As a group, stage an in-class debate about the future of the Sarbanes-Oxley Act. At least three positions can be staked out: leave SOX as is, repeal SOX, and modify SOX.
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What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?
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Read Exercise 13-32. Instead of answering the requirements listed in the exercise, discuss the implications of SOX sections 302 and 404 for the company's internal control issues. img
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Read Problem 9-43. Instead of answering the requirements listed in the problem, discuss the implications of SOX sections 302 and 404 regarding John Winslow's contemplated actions. img img
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