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Ethics and Financial Reporting

Reading:

? AICPA. (2009). Sarbanes-Oxley - the basics. Retrieved on March 1, 2009 from http://thecaq.aicpa.org/Resources/Sarbanes Oxley/Sarbanes-Oxley %E2%80%93 The Basics.htm

? International Chamber of Commerce. (2009). Corporate governance. Retrieved on March 1, 2009 from http://www.iccwbo.org/corporate-governance/

The Sarbanes-Oxley Act (SOX), which was signed into law in July 2002. This legislation was intended to improve the accuracy of the financial statements prepared by publicly held companies. Carefully read the summary of this Act.

Discuss the likely effects of the Sarbanes-Oxley Act:

1. Discuss how the Sarbanes-Oxley Act is likely to affect audit committees of public company boards of directors.

2. Discuss how the Sarbanes-Oxley Act is likely to affect the CEO's and CFO's of public companies.

3. Discuss how the Sarbanes-Oxley Act is likely to affect outside independent audit firms..

4. Discuss section 404 of the Sarbanes-Oxley Act and its affect on internal control.

5. Discuss how the Sarbanes-Oxley Act is likely to affect the accuracy of public company financial statements and the cost of capital for public companies.

6. Discuss the main advantages and disadvantages of the Sarbanes-Oxley Act.

7. Discuss what changes should be made to the Sarbanes-Oxley Act.

If you believe that legislation can guarantee the accuracy of public company financial statements, please explain why previous laws have failed. If you believe that the reverse is true, please explain why CEOs and CFOs are paying so much attention to this law.

Objectively present all sides of the particular issue and provide specific, factual answers with supporting documentation. Don't provide subjective speculation or opinion without any support your conclusions.

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1. Discuss how the Sarbanes-Oxley Act is likely to affect audit committees of public company boards of directors.
The Sarbanes-Oxley Act is likely to affect audit committee of public board of directors because of the stipulation contained in Section 301 of the Sarbanes-Oxley Act. Each member shall be a member of the board of directors. In addition he will be independent and will not receive any compensation apart from board any compensation for any other service. The committee will be responsible for appointment, compensation and oversight of the public accounting firm that has been appointed. It will be responsible for receiving, retaining and treatment of complaints and it will have the authority to engage independent counsel. The audit committee will have proper funding so that it can function properly. The Sarbanes-Oxley Act has substantially increased the responsibilities of the audit committee. For instance, Sec 307 requires that attorneys are required to report evidence to the audit committee. Moreover, Sec 407 requires that at least one person will be a financial expert.

2. Discuss how the Sarbanes-Oxley Act is likely to affect the CEO's and CFO's of public companies.
The Sarbanes-Oxley Act requires that the CEO's and CFO's of public companies to certify that that the reports their companies file with the Securities and Exchange Commission are both accurate and complete. Earlier the SEC had passed an order directing 947 largest US publicly traded companies to file sworn statements attesting to the accuracy of their companies most recent annual and quarterly reports. The CEO's and CFO's of public companies must certify internal controls. If a financial restatement is attributable to misconduct, reimbursement will be realized from the CEO's and CFO's of public companies. If the CEO's and CFO's of public companies do not meet their requirements then there can be criminal sanctions against the CEO's and CFO's of public companies including imprisonment. The CEO's and CFO's of ...

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