The Impact Of Sarbanes-Oxley Act

Over fifteen years ago, Martens and McEnroe (1992) conducted a behavioral study involving earnings management through the use of Generally Accepted Accounting Principles (GAAP). Their findings indicated that auditors issued unqualified audit opinions on those financial statements and perceived little risk to litigation as a result. A decade later they conducted a similar study (Martens and McEnroe 2002) with the expectation that increased attention to earnings management by then chairman of the Securities and Exchange Commission (SEC), Arthur Levitt, would reduce auditors’ perceptions that the letter of GAAP is in itself an aegis or “safe harbor” against litigation. Although the authors found that auditors had become more conservative, they still issued unqualified opinions on financial statements in which transactions were reported in their form rather than their substance. Given the accounting scandals of Enron and WorldCom, among others, and the enactment of the Sarbanes-Oxley Act (SOX) in 2002, especially with its officers’ certification requirements, it was posited that auditors would exhibit a much more conservative approach than in either of the two previous studies. The results indicate that although auditors are more conservative than in the 1992 study, they still allow clients to engage in earnings management practices through the use of GAAP by issuing unqualified audit opinions on their financial statements.

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2002 Sarbanes-Oxley Act: Privately-Held Companies Implementation Issues

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v22i3.1423 ◽

2011 ◽

Vol 22 (3) ◽

Cited By ~ 1

Author(s):

Ronald O. Reed ◽

Thomas Buchman ◽

Richard Wobbekind

Keyword(s):

Internal Control ◽

Control Structure ◽

Cost Effective ◽

Financial Statements ◽

Font Size ◽

Regulatory Governance ◽

Sarbanes Oxley ◽

The Cost ◽

Code Of Professional Conduct ◽

Privately Held

Our research was designed to for two purposes: (1) if the provisions of SOX have merit on their own or whether it is just a mandate by legislators, and (2) to determine if privately-held companies currently not required to implement SOX have done so.  In summary, the respondents, who were experienced financial executives with knowledge of SOX and other regulatory governance policies see SOX as an influential piece of legislation.  They see some positive benefits to their organizations with implementation of some of the provisions of the act, such as better financing options, better credit opportunities, and opportunities to take the company public.  Many of financial executives indicated their organizations are implementing provisions in areas where it cost effective as well making “good” business sense.  For example, it is cost effective to implement a formal code of professional conduct for the executives and it does make good business sense.  However they are not asking their CEOs or CFOs to certify the accuracy of financial statements nor to the internal control structure.  Many of the financial managers indicated they are not implementing SOX on a full scale basis because of the cost, time, and that the lack of benefits derived from implementation.

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An Assessment Of The Impact Of The Sarbanes-Oxley Act On The Investigating Violations Of The Foreign Corrupt Practices Act

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v6i10.2476 ◽

2011 ◽

Vol 6 (10) ◽

Author(s):

Karen T. Cascini ◽

Alan DelFavero

Keyword(s):

Financial Reporting ◽

Font Size ◽

Foreign Corrupt Practices Act ◽

Unethical Conduct ◽

Corporate Scandals ◽

Corporate Executives ◽

Sarbanes Oxley ◽

The Impact

During the late 1990s and early 2000s, a plethora of corporate scandals occurred. Due to these corporate debacles, corporate executives have been placed under fire. In response to such unethical conduct with regard to internal practices and financial reporting, legislation has been passed in order to ensure that corporations conduct their business in an ethical manner. The purpose of this paper is to assess the connection between the Foreign Corrupt Practices Act of 1977 (FCPA) and the Sarbanes-Oxley Act of 2002 (SOx), to determine whether SOx has influenced the FCPA’s investigative violation activities by examining the number of such investigations since the passage SOx. This paper also addresses specific cases of violations of anti-corruption laws and compares SOx and the FCPA on violation penalties.

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Computone Corporation: An Instructional Case in Earnings Management and Revenue Recognition

Issues in Accounting Education ◽

10.2308/iace.2007.22.2.319 ◽

2007 ◽

Vol 22 (2) ◽

pp. 319-332 ◽

Cited By ~ 3

Author(s):

H. Lynn Stallworth ◽

Robert L. Braun

Keyword(s):

Financial Reporting ◽

Financial Statements ◽

Potential Effect ◽

High Tech ◽

Fraudulent Financial Reporting ◽

Revenue Recognition ◽

Software Products ◽

Competitive Industry ◽

Sarbanes Oxley ◽

The Impact

During the boom of the 1990s, Computone Corporation was a high-tech company with viable hardware and software products. The company struggled financially, however, in this very competitive industry. This case demonstrates how the company employed earnings manipulation techniques that resulted in violations of GAAP through improper revenue recognition. Developed from SEC Enforcement Releases, the case demonstrates the SEC's willingness to prosecute corporations and individuals involved in fraudulent financial reporting. The case requires you to analyze the impact of improper revenue recognition on financial statements and to identify risk factors that may have provided incentive and opportunity to engage in fraudulent financial reporting. In addition, the case asks you to consider the potential effect of the Sarbanes-Oxley Act of 2002 and discuss corporate governance issues.

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Examining The Impact Of Sarbanes-Oxley On Non-Profit Health Care Organizations

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v10i2.6787 ◽

2012 ◽

Vol 10 (2) ◽

pp. 69

Author(s):

Caprina P. Beal ◽

Thomas Griffin

Keyword(s):

Health Care ◽

Health Care Organizations ◽

Health Care Organization ◽

Care Organization ◽

Font Size ◽

Case Study Method ◽

Non Profit ◽

Sarbanes Oxley ◽

The Impact

This paper presented a proposal for research on how the Sarbanes-Oxley Act of 2002 impacts a non-profit health care organization. The research study follows a qualitative research method of the case study. In this study, the researcher presented a brief introduction of the SOX act and discussed the research data collected in the case study. Qualitative case study method was used for analysis.

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The Effect Of Auditor Independence On International Capital Markets For eCommerce Firms

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i2.2972 ◽

2011 ◽

Vol 1 (2) ◽

Author(s):

Thomas J. Tribunella ◽

Heidi R. Tribunella

Keyword(s):

Capital Markets ◽

Business Models ◽

New Technologies ◽

Financial Statements ◽

Efficient Market Hypothesis ◽

Auditor Independence ◽

Securities And Exchange Commission ◽

Information Value ◽

Font Size ◽

Sarbanes Oxley

According to the efficient market hypothesis, the market for securities can be described as efficient if the market reflects all available information and reacts quickly to new information (Schroeder and Clark 1998).  Investors depend on financial statements to help them judge opportunities, risks, and investment alternatives (Revsine, Collins and Johnson 1999).  This information must be verified by independent sources such as auditors.  The relationship between auditor and stockholder is based on agency theory (Schroeder and Clark 1998), where the agent (auditor) has a fiduciary relationship with the principle (stockholders).  Any loss of faith in auditor independence by investors will seriously affect the information value of financial statements. Auditor independence rules must be easy to understand and rigorously enforced or the public's confidence in financial statements will erode.  This paper will specifically assess the difficulties encountered by large accounting firms such as PriceWaterhouseCoopers (PWC) and Arthur Andersen  in their efforts to remain independent with respect to their e-commerce clients.  Many e-commerce companies have innovative and untested business models as well as inexperienced and untraditional business managers.  Some auditors fail to measure the risk associated with these intangible, knowledge-based attributes.  In addition, auditor independence may be blurred by the promise of lucrative consulting contracts.  According to Arthur Levitt, the Chair of the SEC in 1999: “The dynamic nature of today’s capital markets creates issues that increasingly move beyond the bright line of black and white.  New industries, spurred by new services and new technologies, are creating new questions and challenges that must be addressed.  Today, we are witnessing a broad shift from an industrial economy to a more service based one; a shift from bricks and mortar to technology and knowledge.” (Levitt 1999) The objective of this paper is to review current independence rules, assess the difficulty in maintaining independence in the current e-commerce environment, and to make suggestions for improving independence rules.  In addition, investigations conducted by the Securities and Exchange Commission (SEC) and new legislation such as the Sarbanes-Oxley Act will be reviewed as possible solutions to the problem.

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The Impact Of Non-Audit Fees Disclosures On Company Value Following The Enron Collapse

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i6.3025 ◽

2011 ◽

Vol 1 (6) ◽

Author(s):

Marcelo Eduardo ◽

Tao Zhang

Keyword(s):

Firm Value ◽

Abnormal Returns ◽

Financial Statements ◽

Audit Fees ◽

Auditor Independence ◽

Financial Statement ◽

Font Size ◽

Publicly Traded ◽

The Impact ◽

Non Audit Services

Investor confidence regarding the reliability of financial statements is absolutely critical for publicly traded companies. The bankruptcy of Enron has brought to the forefront the issue of auditor independence and financial statement reliability. As a response to the criticism that the growth in consulting services by CPA firms was leading to a conflict of interest and significantly hindering auditor independence, the SEC approved new auditor independence regulations that required publicly traded firms to disclose the level of fees that were paid to their external auditor for non-audit services.   This paper investigates the impact that the Enron collapse has had on investor perceptions about auditor independence and financial statement reliability. Using data from proxy statements concerning non-audit fees paid to external auditors, we find evidence that auditor independence and therefore financial statement reliability are compromised by the provision of these non-audit services. The results indicate that in the wake of the Enron revelations, investors perceive financial statements as being less reliable and thus require an additional risk premium, which translates into lower stock prices and a loss of firm value. We also find that there is negative relationship between the extent to which firms use non-audit services and the negative abnormal returns they suffered during the Enron collapse.

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ANALISIS RASIO UNTUK MENGUKUR KINERJA KEUANGAN PERUSAHAAN (STUDI KASUS PADA PT MEKAR KARYA PRATAMA)

Jurnal Ilmiah Binaniaga ◽

10.33062/jib.v9i1b.330 ◽

2019 ◽

Vol 9 (1B) ◽

pp. 15

Author(s):

Rizki Ahmad Fauzi

Keyword(s):

Financial Performance ◽

Financial Statements ◽

Corporate Activity ◽

Significant Change ◽

Overall Ratio ◽

The Impact ◽

Solvency Ratio

Based on the results of the analysis of the ratio of the financial statements can be seen from liquidity ratio in 2010 can already be said to be liquid and in 2011 occurred very significant increase in this ratio that makes the company's liquidity to be too high. Judging from the solvency ratio, in 2010 the company could not be said solvable because the value of this ratio is still quite high. However, in 2011 this ratio decreased significantly which shows that the company can already be said to be solvable. From the ratio of the activity, in 2010 and 2011 the ratio of corporate activity can already be said to be good. Despite the decrease from 2010 to 2011 on some of these ratios, but the overall ratio of activity of the company is good enough. Judging from the ratio of profitability, in 2010 and 2011 the profitability of the company can not be said to be good because it is still very low and no significant change from the year 2010 to the year 2011 for this ratio.The overall financial performance of PT Mekar Karya Pratama from year 2010 to year 2011 can be said to be good, although there are some things that must be considered and they should be repaired as liquidity is too high which causes the idle funds and the impact on the profitability is low. Keyword:Rasio Analysis

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Particularities of the independent auditor's report on reliability of accounting (financial) statements for 2019: COVID-19 as qualitatively essential information (Part 2)

International Accounting ◽

10.24891/ia.23.7.777 ◽

2020 ◽

Vol 23 (7) ◽

pp. 777-799

Author(s):

O.I. Shvyreva ◽

Z.I. Kruglyak ◽

A.V. Petukh

Keyword(s):

Financial Reporting ◽

Financial Statements ◽

Economic Situation ◽

Risk Disclosure ◽

Essential Information ◽

Logical Method ◽

Annual Reporting ◽

The Face ◽

Key Aspects ◽

The Impact

Subject. This article discusses the issues related to the practice of financial reporting in the face of uncertainties caused by the coronavirus contagion, as well as the specifics of the audit strategy and formation of an audit opinion on this reporting. Objectives. The article aims to identify the quality characteristics of financial reporting prepared in the context of the COVID-19 pandemic and justify the key aspects of assurance engagement completion in an extremely uncertain epidemiological and economic situation. Methods. For the study, we used an abstract-logical method, content analysis techniques, systematization, and classification. Results. Analyzing the impact of the extremely uncertain epidemiological and economic situation on financial statements, the article clarifies aspects of disclosure of events after the reporting date and threats to business continuity in the annual reporting of economic entities. The article identifies possible alternative procedures and algorithms to obtain proper evidence when it is insufficient in the face of the inability to meet certain audit standards requirements in a remote audit environment. The article defines the impact of COVID-19 risk disclosure on the structure of the audit report and opinion. Relevance. The results of the study can be used in the practical activities of economic entities that prepare financial statements in the face of significant uncertainty, as well as auditors and audit organizations.

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IFRS IMPLEMENTATION AS ONE OF THE FACTORS FOR IMPROVING THE INVESTMENT CLIMATE IN UKRAINE

International scientific journal Internauka Series Economical Sciences ◽

10.25313/2520-2294-2020-12-6598 ◽

2017 ◽

Author(s):

Kateryna Sova ◽

◽

Natalia Yatsenko ◽

Denys Zagirniak ◽

◽

...

Keyword(s):

Financial Reporting ◽

Direct Investment ◽

Financial Statements ◽

International Standards ◽

Investment Climate ◽

The European Union ◽

Economic Activities ◽

Financial Reporting Standards ◽

Almost All ◽

The Impact

The article is devoted to the study of the impact of the introduction of International Financial Reporting Standards (IFRS) on changes in the investment climate in Ukraine. The relevance of the topic is that improving the practice of applying IFRS as a tool for exchanging financial information is one of the key conditions for improving the investment climate in Ukraine. The authors have created the generalized scheme that illustrates the chronological list of enterprises that are required by law to prepare financial statements in accordance with IFRS. It was noted that in 2018, in accordance with Part 2 of Article 12 of the law on accounting and financial reporting in Ukraine and resolution of the Cabinet of Ministers of Ukraine No. 547 from 11.07.2018, the criteria of enterprises that are required to prepare financial statements in accordance with IFRS were updated. This step significantly increased the level of application of international standards due to the adoption of such a decision at the legislative level. The dynamics of the number of IFRS enterprises in Ukraine was analyzed. The analysis showed that over the past three years, the number of almost all enterprises that must apply international standards has been growing. The advantages of using IFRS for different users of financial statements were determined. It was determined that the priority users of IFRS financial statements are investors. At the same time, it was noted that the main advantage for other users of financial statements prepared in accordance with international standards is the improvement of the investment climate. The dynamics of the Investment Attractiveness Index of Ukraine based on the Likert scale in the period from 2016 to 2020 was analyzed. The direct investment receipts to Ukraine from the European Union countries were studied. The dynamics of direct investment in the Ukrainian economy was analyzed for two types of economic activities that should form financial statements in accordance with IFRS, namely, the extractive industry and quarrying, as well as financial and insurance activities.

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