Accounting and Audit Enforcement - Research Paper Example

? Assignment 2: Accounting and Audit Enforcement Assignment 2: Accounting and Audit Enforcement The SOX act of 2002, an abbreviation of Sarbanes-Oxley Act, is an accountancy law that set new laws and enhanced standards for all public company boards within the United States, its management, as well as the firms in public accountancy. The other common names of the SOX act are Public Company Accounting Reform and Investor Protection Act or the Corporate and auditing Accountability and Responsibility Act. The SOX act stipulates that the top management of a public company must personally certify the accuracy of the financial information presented to them by the accounting department. This is to ensure that the published results are and fair according to the performance of the company during the fiscal year under scrutiny. In addition to verifying accuracy of financial information, the Act also places severe penalties against any fraudulent financial activities, as well as increasing the independence that external auditors have when they review the corporate financial statements of a company, in addition to increasing the oversight role of the board of directors (Haverkamp, 2009). The SOX act has a number of provisions which industry players, especially companies in the public sector have to adhere as well as abide to. The first element is the Public Company Accounting Oversight Board (PCAOB). This independent oversight committee of public firms also provides auditing services. The next option is the independence of the auditor from external influence from either the management or the board of directors. This law also demands that companies fulfill their corporate responsibilities such as ensuring accuracy of corporate financial results. Other provisions of the SOX act include enhancement of financial disclosures, analysis of conflicts of interests, commission authority and resources, studies and reports, corporate and criminal fraud accountability, white collar crime penalty enhancement, corporate tax returns, as well as corporate fraud accountability (Khosrowpour, 2006). The above are the common provisions for the SOX act especially for public companies. However, the law also applies to private companies as well as the not-for-profit companies. There are regulations for these companies to ensure that present a review of their tax-exempt status on every fifth year of their operation. Furthermore, it was necessary for these not-for-profit companies to improve their scope as well as the quality of form 990 and financial statements. In addition, it is mandatory to improve availability of financial records in order to create greater transparency. The SOX act has put considerable pressure on not-for-profit firms, especially those that have sizable budgets to an extent that they are implementing a considerable number of practices that mirror the ones used and implemented by public companies (Rezaee, 2007). The SOX act requires health care institutions to follow the stipulation requiring them to set up an independent audit committee. This committee contains no member of the management and none of them receives any compensation from the company. Smaller organizations have to settle for a finance committee that also tops up as the audit committee. In addition, the CFO as well as the CEO of these health care institutions has to attest to the accuracy of the financial results and Form 990, and confirm their fairness and completeness. These leaders of the health organization also have to attest to the adequacy of the internal controls of the firm. These organizations also have to make their financial results more accessible by posting them on the ‘Not-For-Profit’ website, as well as adopt and publicize a given code of ethics. The act also demands that the organization adopts the rules regarding transactions with any insider, and these include executive compensations as well as fringe benefits (Straesser, 2009). Mandating SOX requirements for all not-for profit organizations as well as other public health care institutions reduces fraud within these organizations significantly as well as lead to an increase in the corporate governance of the company. This is because the act demands for deeper accountability and specific performance on financial statements of the company, such as accuracy, fairness, and completeness. This eventually eliminates any loopholes to perform any fraudulent activities as well as reduce the chances of an individual taking advantage of their position in a company to embezzle its funds, or put the funds to waste. In addition, the requirement that these financial statements be put on the website for not-for profit companies for easy accessibility makes it even more imperative by reducing all chances for theft (Haverkamp, 2009). SOX regulations have recorded significant progress in enhancing the effectiveness in the regulation of ethical behavior of for-profit health care organizations. Most private health care institutions use the provisions of operating as private firms to fleece the public by offering their products and services at very exorbitant prices or fees. The implementation of SOX in their normal operations as well as accountancy results and reporting financial information, these health care institutions have to post publicly their legal fees and operational charges. This transparency exposes them to the public and they can choose which among the numerous private health care institutions offers better quality health care services at affordable costs. As such, these companies hospitals risk losing customers, and thus will reduce their charges al be it in compliance of the SOX act, but majorly to attract more clients (Khosrowpour, 2006). A number of deficiencies existed in the Information Technology department, whereby most corrupt accountants blamed computer errors for the mistakes evident in their financial statements. However, the implementation of SOX procedures enables these companies to improve their audit trials, their data integrity, as well as improve their policies and procedures such that they may be able to reduce the high risk of fraudulent activity. The SOX act demands for transparency, accuracy and accountability in all the financial statements prepared for a firm. As such, these firms can adopt specific SAP packages in order to control the financial mischief that may occur in their accounting departments, and as such, eliminate any chances of financial risks. These SAP procedures also allow the company to monitor its financial transactions as well as come up with formidable security blocks for financial operations (Rezaee, 2007). The audit report provides evidence of fraud within the heath carte institution under consideration. This fraud occurred through the social security fund whereby they manipulated charges from these health care insurance in order to steal from both the company and the security fund. Internal auditors were negligent of this fact when preparing the audit report of the company, as they did not mention of any security fund used by the hospitals on a number of occasions to take care of the health care needs of their patients who were registered to this fund. These internal auditors violated the rue of fairness and accuracy in reporting the financial statements of the company, which also fall under the rules of Generally Accepted Accounting Policy (GAAP) (Straesser, 2009). The SOX provisions violated by the fraudulent activity at this health care institution were the requirement for transparency and accountability in reporting of financial results. The Chief Financial Officer of the health care institution, as well as the Chief Financial Officer assisted in committing of the fraud by attesting to the accuracy of the financial results yet they lacked some select information on their financial statements. However, the SOX act provides adequate sanctions against these ill-performing firms in order to deter their fraudulent behavior as well as provision of adequate room for making changes that would remedy the issues under discussion. This act also allows for the strict performance and compliance of all health care firms to the laid down financial reporting standards such as the GAAP and the IFRS (Haverkamp, 2009). In order to eliminate a repeat of what happened in the financial records of this health care institution, the hospital has to implement a number of new directives and practices that enable strict compliance with the rules and policies of financial reporting. The first rule would be to incorporate a computerized accounting system in management of all the sales and fees charged by the health care institution. As such, all records will go automatically into the financial records of the company. Furthermore, the health care institution cans also institute SAP programs in their accounting procedures in order to have more accuracy as well as development of the financial results of the company (Khosrowpour, 2006). References Haverkamp, L. (2009). Corporate Governance: Codification or Self-Regulation? Norderstedt: GRIN Verlag. Khosrowpour, M (2006). Emerging Trends and Challenges in Information Technology Management: 2006 Information Resources Management Association International Conference, Washington, DC, USA, May 21-24, 2006, Volume 1. Hershey, Pa: Idea Group Inc (IGI). Rezaee, Z. (2007. Corporate Governance Post-Sarbanes-Oxley: Regulations, Requirements, and Integrated Processes. Hoboken, New Jersey: John Wiley & Sons. Straesser, A. (2009). How to Tackle C-SOX? The Success Formula for the Implementation of the Basic Standard for Enterprise Internal Control - The Chinese Answer to the Sarbanes-Oxley-Act. Berlin: BOD – Books on Demand. Read More