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Apex Printing - SOX 302 Compliance

All I need is 400 words on this.

Apex Printing has provided its financial statements from the prior 2 years for you to review during your first week with the company. Your objective is to become familiar with the company's recent historical performance so that it can be benchmarked to competitor performance in the future. It is critical to gain an understanding of the company's operating structure and its influence, if any, on financial performance.

Primary Task Response: Respond to the following scenario with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas.

Because this is your first week as vice president (VP) of finance at Apex, several members of the top management team have stopped by your office. Timothy Russell, chair of the audit committee, comes in first to talk with you about the Sarbanes-Oxley Act of 2002 (SOX).

"Welcome to Apex," he says. I hope you're getting comfortable with us here. We have a lot on our plate, and we need your assistance with some important compliance issues."

"Thanks, Tim," you say. "Mary Francis mentioned Sarbanes-Oxley when I talked with her last week. Maybe we can start with that."

"Right. As you know, our company is private and will eventually need to seek external funding. Currently, we're not compliant with all of the requirements of SOX. Apex is compliant with Section 404 regarding internal control, but not 302 relating to the certification of the chief executive officer (CEO) and chief financial officer (CFO)." He continues, "As you know, compliance is necessary for an initial public offering (IPO) of equity shares. If John and Mary aren't confident that the internal control is sound, then they need to take steps now to change procedures."

"So, let's discuss the requirements and considerations for the CEO and CFO to achieve compliance with Section 302 of SOX," you say.

"Exactly," he responds. "We also need to consider the ethics and potential ramifications for noncompliance to make the right decision for the company. One question we need to answer is 'Does it make sense for Apex to attain full compliance with SOX? And why or why not?

In 400 WORDS, discuss Tim's question: Does it make sense for Apex to attain full compliance with SOX? Why or why not?


Apex Printing, Inc. is a private, domestic United States printer of periodicals, newspaper inserts, and advertising materials that accompany distributions of Sunday and weekday circulations of large metropolitan newspapers. The company, headed by CEO John Matthews, generates $450 million in revenues from three product lines (periodicals, inserts, and advertising) and has long-term contracts with several large U.S. retailers to produce weekly sales flyer inserts as well as metropolitan newspapers to produce Sunday magazine inserts and coupons. Its printing presses are characterized by offset print technology and capable of high-capacity output; in addition, the company recently migrated to water-soluble inks, which reduce manufacturing emissions considerably.
The company's executive team, employees, and above all, its Vice President (VP) of Production, Luke Stewart, are committed to environmentally sustainable manufacturing practices. Presently, the only substrate Apex uses is paper, specifically newsprint of various weights. Trim and waste are recycled in accordance with the company's sustainability commitment. Manufacturing divisions are geographically aligned with customers' locations to minimize logistics cost and response time to customer requirements; however, a centralized corporate entity administers functions such as human resources, information technology, and financial reporting. The VP of Sales and Administration, James Simeon, oversees administration and quality compliance among the various divisions. There are presently five manufacturing divisions: Northwest, Southwest, Northeast, Southeast, and Midwest.
Currently, Apex is only marginally profitable, and as such, the Chief Financial Officer (CFO), Mary Francis, has indicated that external financing will be required to support a company expansion into a new segment of the printing sector: food packaging. This endeavor will require new investments in equipment as well as substrate inventory; promotional costs will also increase. In addition, Timothy Russell, the new Audit Committee Chair, has pointed out that the company's compliance with the requirements of the Sarbanes-Oxley Act (SOX) will cause administrative costs to increase, as well. But following the requirements is paramount to successfully file a registration statement and issue equity to shareholders in an initial public offering (IPO).

As the newly hired VP of finance, you report to the CFO. In this capacity, your responsibilities include preparation of financial statements, comparative analysis and benchmarking to sector performance, and assessment of new business investment opportunities to grow Apex's expansion endeavors in a challenging market.

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Solution Preview

In weighing the pros and cons of Apex decision to work to meet compliance with Sarbanes Oxley (SOX), we must first understand what section 302 of SOX is requiring of the CEO and CFO, in this case, John and Mary.

Section 302 of SOX requires that a company's CEO and CFO be personally responsible for accurately reporting all materials in respect to their company's financial health and stability. Additionally, Section 302 states that the company's CEO and CFO certify that all of the proper "disclosure controls and procedures" are in place within the internal accounting functions of the business to guarantee the accuracy and timeliness in the company's financial reports released to investors and the public. Section 302 goes on to state that any willful signing of these certifications by a CEO or CFO who knows they are not accurate will result in fines up to $5 million dollars and up to 20 years in prison (Cohen & Brodsky, 2004).

So, what are the pros for Apex in working hard to meet the criteria necessary to make John and Mary comfortable with signing these documents and placing themselves at risk should ...

Solution Summary

Apex Printing Case Study: Solution focuses on the pros and cons for Apex in deciding to meet SOX requirements for going public or remaining private. Gives details on the specific requirements for a CEO and CFO in order to be compliant with this law.