Impact of the Sarbanes-Oxley Act on Internal Controls

Impact of the Sarbanes-Oxley Act on Internal Controls 1. Introduction In 2001, Enron reaffirmed that their previous financial report had to revise as accounting errors existed in their computer system. After that, Enron the largest US corporate with assets of $63.4 billion faced the end road of bankruptcy suddenly. Four thousand employees face losing theirs job and retirement pays (Benston, 2002). It is not merely one person can break a solid business structure. The result of investigation shows this case was a corporate scandal. The Enrons top executive empowered the employees to manipulate the stock price. As a result, the Sarbanes-Oxley Act was legislated because of the fraud behaviors which created by Enron. President Bush described this scandal as the most far-reaching reforms of American business practices since the Great depression when he signed SOX Act (Hays 2003, cited in Eichar S. 2009, p.1). It seems likely that the weak internal control system were has ability to prevent the accounting scandal happening. Moreover, the top managers did not function effectively in order to monitor theirs companys financial condition as well as involving in accounting scandal. Another problem is that the managers ethics behavior needs to be tested and considered. The main purpose of SOX Act is to prevent a fraud such as Enron case happening again, whereas some people have the skepticism with SOX Act that can still work for modern corporation. This paper attempts to analyse that internal control was generally become more effective since the Enron scandal. 2. Accounting Information Systems The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has a definition on internal control that as a process is designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. (http://www.coso.org/resources.htm) When Sarbanes-Oxley (SOX) Act (to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes, US congress) (SOX Act) has been signed in 2002, the concept of internal control has been carefully considered in information system improvement. The section 404 of SOX Act indicates that company has the responsibility to declare the assessment of internal control structure in each fiscal financial report. For an organization, an accounting information system (AIS) which is a key framework for information system plays an important role in organization, processing and management the process of transaction, which is a foundation for building information system in business (Moscove, 1999). Because accounting information system could bring benefit for computerized company. Not only can it control obvious audit trail (an obvious evidence to confirm the transactions accurately) for purpose of assurance and auditing, but also it has connecting general demand for physical protection of assets. Nowadays, the Enterprise Resource Planning (ERP) system is used popularly after SOX Acts had announced. ERP system is built based on the advantage of accounting information system. According a research indicates that 80 percent of the fortune 500 firms have implemented the ERP system (SAP, 2005 cited in Brown Nasuti, 2005), because of the following benefits: accessing data in time, integrating the process of business operation and transferring internal information correctly. The SOX Acts requests the enterprises should keep going on evaluation of the management risk, ERP systems still has significant effect on collecting risk management data as companies used it (Brown Nasuti, 2005). Research (Huang, Hsieh, Tsao, and Hsu, 2008) shows the most important factor of internal control dimensions is the control environment: monitoring. There is a good example illustrates some main elements of internal control as using ERP system. Research (Huang, Hsieh, Tsao, and Hsu, 2008) finds some featu res of using ERP systems in Taiwan public companies and there are most important results tally with the purpose of internal control:(1) Establishment of IT organizations and their relations, (2) Integration and communication of financial information, (3) Development of IT strategic plans, (4) Management of information quality, and (5) Monitoring of operating procedures (pp. 104). This result is exactly integrated with the original definition of control environment by COSO: The Control Environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure.(COSO, 1992 cited in Huang, Hsieh, Tsao, and Hsu, 2008, p. 114) As the result, the primary task is making security for physical control, in order to process the internal control function effectively. In addition, the senior management support could be a main factor caused ERP and IT project implementation successfully. The second issue which should be considered for internal control is integration and communication of financial information. The ERP systems could support utilize IT to combine organizational resources and information about finance and accounting for companys operation strategies. Furthermore, the SOX section 404 has regulated the internal control leading to contribution of financial reporting (Huang, Hsieh, Tsao and Hsu, 2008). The company mangers not only could use financial information for evaluating their companies financial structure and the result of operating, but also public users have more confidence to invest these companies with their safety financial information. Therefore, it is necessary to confirm the relevance and reliability of financial information. Today, firms should consider implementing a new concept of internal control monitoring (ICM) technology for purpose of support and facilitate internal control processes. There are two definitions that explain ICM function: ICM technology encompasses a range of control monitoring tasks, including the automation of routine control tests, enhanced risk assessments, evaluation and documentation of controls, and managing and communicating control assurance activities (COSO 2009 cited in Masli, 2010, pp.1103-1104) and The goal of ICM is to enhance the overall visibility of the organization to risk and performance through the effective use of technology (KPMG2008 cited in Masli, 2010, p.1104). Masli(2010) shows that most companies had imputed large-scale investment in IT development in the last ten year. Unfortunately, these funds were wasted, because some reasons caused the plan to fail, such as untrained workers can not fully use the leading software effectively and physical hardware inco mpatibility. Different than AIS and ERP system, the ICM concentrates on risk assessment and responds a message immediately if somebody intends to break internal control system. The ICM technology can link with other data of operating index. For instance, if the supervisor finds companies stock price has an unusual fluctuation in stock marketing, the monitoring system will respond to high executives and list the potential factors together. For these reasons, there is no question that the ICM technology can be used in every firm. 3. Organization of board of directors In Enron Company, the board of directors does not have responsibilities to detect the weak financial structure. Even though there were 15 members in the board of directors, they do not prohibit managers using high risk accounting standards, and ignore any potential because all members are. Furthermore, the each member had received more salary and owned high amount of Enrons stock (USA senate report). The board of directors could affect the quality of companies internal controls. First of all, one thing which has to be considered is the number of outside directors on the board of directors. Research (Beasley, 1996 cited in Yan, Jian Nan, 2007) suggests that the board independence does not usually lead to the problem of financial fraud. Then, other expertise indicates it is necessary to consider the number of directors in a board. Enhancing the board structure could reduce the likelihood of the business being exposed in weak financial system and improve the financial reporting rationality. Research (Dalton, 1999 cited in Yan, Jian Nan, 2007 p.308) states a large board has more expertise than a small one, and that it tends to be more effective in monitoring accruals. It seems that the phenomenon of weak internal control does not exist in a large board. Moreover, another expertise finds that the board size is beneficial for audit committee independence and a large board of director could have the effective audit committee as well as served high-quality audit services (Yan, Jian Nan, 2007). It seems that there are more outside directors can enhance the quality of internal control, because their independence can not be affected by compensation such as the director fees and stocks. Under SOX, the primary issues of setting up the independent auditors could lead to the reliability of the internal control. The SOX section 301 requires that the audit committee has responsibility for ensuring the audit report and each member should be independent (SOX Act). From the Enron case, it is clear that the audit committees can enhance the financial report quality and offer effective monitoring censorship in internal control. An audit committee has some responsibility of such as: review of the internal audit department and the annual audit plan, evaluate of annual financial reports and the results of audit, criticize of the internal accounting controls, and security of business assets. (Steven T., 2005 p.58) Steven T. (2005) points out that companies have the reliable financial information, because their audit committees are independent. Then, if the members of audit committees have high financial background, it can find that these companies are unlikely to have problem of i nternal control and have more abilities to find the faults of internal control (Yan, Jian Nan, 2007). One issue which should be considered the audit independence has a significant effect on disclosure of firms internal control problems. Because the fees are a potential factor to affect the relationship between auditors and client businesses, the auditors are more likely to ignore potential problems and issue an incorrect opinion on clients internal controls. Conversely, an expertise claims that there is no relation between non-charge services and independence. In order to maintain auditors reputation, they could provide high-quality service and prevent anyone doubted about their independence (Yan, Jian Nan, 2007). It can be concluded that the independence for board of directors is more important than the outside auditors (Certified Public Accountant films). 4. Business ethics In this decade, the world economic system faces one big challenge that more and more frauds have happened in each year, such as accounting manipulations, and unethical behavior. The early law and legislation aimed at purpose of financial establishment and the security of the monetary system (Rockness, 2005). Consequently, the fraud scandals happened again and again. The Sarbanes-Oxley Act has the function of providing a regulation for companies ethical behavior. The SOX section 301 has ruled on the responsibilities to the audit committee, because the audit committee plays an important role in board of directors. Analyzing recent ethical failures, one study (Lublin and Carms, 2003 cited in Rockness, 2005 p. 45) indicates the audit committee was directly involved, perceived as too closely tied to the corporation, or oblivious to financial reporting situations. In this way, the audit committee has to provide a mechanism which communicate the unethical behavior to companies employees and the external auditors. Additionally, it is obvious that SOX Act not only provides strict rules for business, but also giving guidelines for companies to establish the ethical atmosphere in order to maintain the high working performance. The SOX section 406 requires that public corporations should set up a code of ethics for senior managers, and moreover, they have to explain in annual report why not having code of ethic. The main purpose of code should be included: promotion of honest and ethical conduct, full and fair disclosure, compliance with laws, internal reporting for violations, and accountability for adherence to the code. (Securities and Exchange Commission, 2003b cited in Rockness, 2005, p. 46) In last two decades, most American companies have had an ethical code. Some of European companies also have accepted this trend. These companies have installed the codes to give theirs employees a guideline for work (Sobczak, 2003 cited in Stevens, 2007). According to one study (Kaptein, 2004 cited in Stevens, 2007) different countries companies have the different results, when those companies have implemented ethical codes. A study (Kaptein, 2004 cited in Stevens, 2007) finds that European codes concentrated on work environment are 50% that more than American codes. Conversely, the honesty was a significant issue for American codes (64%) compared with European codes (45%) and Asian codes (38%). It is clear that Americans organizations usually less concern fairness in the work. In the Enron case, it found that Enron were willing to offer high reward in order to motivate their employees to reach the business goal with the unethical behaviour. To summary all mentioned above, successful companies should have a unique ethic value that connected with business goals. These employees could use different business skills at work. It can be more flexible and adaptable without losing their important ethical values. The long term goal for businesses is that infuse a new thinking of purposeful task with the pure ethical values rather than pursuing the high income (Stevens, 2007). 5. Conclusion In conclusion, SOX Act makes the profound impact on internal control building and there are three aspects could explain why recent internal control is effective for the organizations. First of all, the role of accounting information system offer the important audit trail for accurate auditing and another benefit is protection for the physical assets. Moreover, enterprise resource planning software has an additional function which is risk management. Taiwans example shows that the ERP is linked with enhancement information quality and monitor the operating process and another function is it can integrate internal control with the communication of financial information for the operation strategies. Then, new trend is for implementation of the internal control monitoring combined with ERP system. It can ensure security of the information effectively and detect the unusual signal immediately. Secondly, the independent audit committee is an essential requirement for enhancing the financia l report quality and monitoring the internal control. More members in the board of directors could enhance the quality of audit committee and provide high-quality audit job for the companies. The last aspect is that the SOX Act has mentioned organizations should disclosure the code of ethics in financial report. It means the business have the responsibility for training the ethical culture to theirs employees. As discussed above, the SOX Act has ruled to make the internal control effective. It seems that the information system, managers structure and ethical concept have been improved and achieve the internal control effective.

Authentic Freedom Essay

A human being is free to do as what they please! That’s just an interpretation of authentic freedom. All too often humans think of freedom as a free for all. Authentic freedom is does not mean doing what one wants when one wants to whom one wants, but rather it means, understanding who one is , that a human being is not alone and here to contribute to society. Authentic freedom is a paradox, one that will make you think, but not a contradiction. The more freedom a human being has, the more one is called to respond. â€Å"Freedom is exercised in relationships between human beings. Every human person, created in the image of God, has the natural right to be recognized as a free and responsible being. All owe to each other this duty of respect. The right to the exercise of freedom, especially in moral and religious matters, is an inalienable requirement of the dignity of the human person. This right must be recognized and protected by civil authority within the limits of the common good and public order (Catechism, 1732). A human being gains freedom, by exercising freewill in a positive and productive way. People make choices in daily life, choices that affect the ability to live a free life. When one chooses to go counter to the common good, a human being chooses slavery, slavery to the consequences of one’s choice. †The more one does what is good, the freer one becomes. There is no true freedom except in the service of what is good and just. The choice to disobey and do evil is an abuse of freedom and leads to â€Å"the slavery of sin† (Catechism, 1733). When a human chooses not to listen to their conscience one chooses to listen to the voice of evil, when that happens, a human being has just entered in to a slave/master relationship. With them being the slave. Freedom allows one to make choices that benefit themselves and more importantly the world around them. Freedom demands of one, or rather obligates one to concern ourselves with the affairs of the world around us. If you look at the world around a human being, countries where freedom is lacking, the overall population is less concerned with their fellow man, then in a freer society. The same can be said of individuals, the more freedom a human being has, and the more responsible one acts to other, on the whole.

Malware review

While technology in computing continues to rise, computer hackers and crackers are also evolving. Cracking even started at the early age of computer technology. It started from simple codes exploiting bugs in Operating Systems. And now, it becomes a hobby of some. Stealing passwords and exploiting computers are common way of cracking. Some people termed it as hacking. Everyday, anti-virus companies are also upgrading their systems since viruses and other harmful softwares are upgrading. Piracy is another story. It is an act of duplicating someone’s work and sells it. Before, it is not common and hardly be seen. But as devices and softwares are upgrading, duplications can be made in a split of seconds. For some consumers, it is good but for the industry, it is a disadvantage. Piracy is one of the major problems that media industry is facing. But, technology cannot be fathom; it is continuously evolving in exponential manner. Music publishers (the entertainment industry is the ones affected) released their cure or prevention for such exploitation. The program is called â€Å"rootkit†. Basically, its task is to hide copy protection on computers.   With its ability, people can no longer copy music. In this way, piracy can be prevented. But, Sony admitted that someday somehow people will try to crack its code and continue on pirating. But for sure, media industry’s cyber security personnel well not let crackers succeed. On the other hand, due its capability to control computers, rootkit was distinguished by most anti-virus software as a malware. On an article on Technology Review published by MIT and written by Wade Roush, Technology Review interviewed Bruce Scheiener a computer security guru. There, Scheiener discussed about the tool and its capabilities. In â€Å"When Copy Protection Becomes Malware†, the computer security guru specifically identified the work of the rootkit and why it is called a malware. Basically, malware is a form of software that can control the system. Some malwares are harmful. But in the case of Sony, it has no other functions except to hide copy protections on users’ computer. The reason why it is distinguished as malware is because of its capability to manipulate the system wherein the user’s freedom of the product is given limitations. Added by Scheiener, computer users or consumers often times do not know what they are buying. Advertisements are so broad that buyers only see the outside appearance of the capability of the product. Consumers do not know what else their product can do. With this weakness, rootkit see an opportunity. It can’t be distinguished by consumers as harmful except when their anti-virus reacts on it (after distinguishing it as a malware). But these days, rootkit is accepted by anti-virus companies as useful software and now freely preventing music from being copied. In my opinion, it is illegal and unethical to copy a product. The ethical nature of copy protection and its implementation on the other hand is discussed in relation to a new set of copyright laws called The Digital Millennium Copyright Act. This act protects the media industry. It punishes those people involved in illegal duplication of digital products. In some point, consumers do not freely get what they needed for a product. Consumers buy digital products to satisfy their needs. But with this technology, some consumer’s rights are somewhat by passed. If we try to look at some point, there is a contradiction. Consumers wanted to buy a product that will make their lives easy. But this objective is not met since producers have the capability to control the product they want to sell. But, we can also say that it is a part of technology advancement. It is like before. There are no copying devices before so digital products are secured. It only came when the technology advances and devices able to duplicate are manufactured. Digital products vendors are only upgrading their system. They only restore what was lost. With the rootkit, digital products today have similar limitations before, except that it’s more advance and more easy to use. There’s another important thing the article discussed. The rootkit was not detected by anti-virus softwares before. There are people who know that Sony rootkit is freely exploring their computers. One of the reasons for this is that, Sony’s technology or program is more powerful than the anti-virus available that time. There were customers who noticed it. Some make noise that their anti-virus software did not detect the rootkit. It’s really shame on the part of anti-virus provider. Their software should be able to protect the computer from harmful viruses yet rootkit passed the test. We can picture out that programmers are getting their codes better in order to cross the gate which are set by protection softwares. However that did not last a long time. Anti-virus software providers developed further their products and able to detect the rootkit. Scheiener was asked if Sony will not make another program similar to rootkit. The guru said boldly that Sony will again do it when the controversy is over. Well, we cannot blame the company for it. They are only protecting their products from pirates. If more piracy will happen the digital industry will not also last for long. There will be no marketer on the said or similar products. It is also their way of saving their jobs and professions. Malware is really a big issue. Rootkit is not free from that controversy. The process will just create a cycle. There are people who will continue to find ways how to pirate a digital product. Crackers will continue to write codes in order to exploit bugs of every technology. While that is happening, cyber security personnel will find ways to prevent their products from being stolen. This is indeed an indication that we passed the days of low-technology and now experiencing a high-end digital technology. Nonetheless, copy protection will still be recognized as malware unless anti-virus provider withdraws its security on the program. Reference: Roush, W. (2006). When Copy Protection Becomes Malware. Technology Review. Retrieved

Essay Nike - 591 Words

Nike is a huge supplier if athletic shoes for the world these days. Philip H. Knight, the founder of this corporation came up with an idea of an athletic shoe at the track field of the University of Oregon. nbsp;nbsp;nbsp;nbsp;nbsp;Now it has become a leader in the global economy. Nike has helped the economy by employing more than 500,000 people, worldwide. The company has contributed in finding a positive policy for minimum wage. Minimum wage laws usually don’t help who they’re originally set out to. Now with Nikes’ minimum age requirements it helps those it was naturally set up for. The minimum age requirement also prevents teenagers from dropping out and taking on full time jobs at Nike. nbsp;nbsp;nbsp;nbsp;nbsp;Philip H.†¦show more content†¦The shoe companies are substitutes for each other which makes for an elastic market. Consumer’s who aren’t set on one name can easily pick between all the brands to find the best deal. With Nike and Adidas in the lead it is apparent that the name makes a different. Nike doesn’t spare in the advertising area in 1997 they spent $978.2 million. nbsp;nbsp;nbsp;nbsp;nbsp;The University of Oregon is threatening to join the Workers Rights Consortium. Knight, a believer in the labors Fair Labor Associations against the University joining the WRC and plans to contribute nothing if they go ahead with it. Both parties need to weigh the opportunity costs of their decisions. The University of Oregon is looking at a 50 million dollar opportunity cost if they join the WRC. This is a huge extranality to the students of Oregon. To give up on receiving that kind of donation really hurts the students. If the University of Oregon and some other schools decide to join the WRC the impact could be one of hurting the economy. There will be less need for employees because the donations of athletic wear will decrease significantly. The equilibrium will change resulting in a revenue loss to the corporation and to the employees that will no longer be needed. nbsp;nbsp;nbsp;nbsp;nbsp;Nike is trying to deal with this through private solutions. Knight authorized the PricewaterhouseCoopers factory monitoring group to give the results on their visits, because he says they haveShow MoreRelatedNike And Nike Vs. Nike1268 Words   |  6 PagesAdidas and Nike are two major athletic clothing companies on the market. The two brands are both commonly worn by athletes. Nike has endorsed some of the top athletes in the world. Take Michael Jordan for example, Nike created an entire brand off his name, â€Å"Air Jordan’s.† Adidas also has multiple athletes that advertise for them including soccer player David Beckham. The two companies have been in constant competition with their footwear and apparel for several years. 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