Following the pervasive financial losses which occurred as a result of the great depression, the U.S. Securities and Exchange Commission (SEC) was established with the guiding principle to instil confidence in current and potential holders of stocks and bonds that publicly traded companies are managing funds efficiently and appropriately, which is to be achieved through “full disclosure” of the organizations’ financial performance in the form of quarterly and annual financial statements (Callahan, n.d.a, p. 1). Nevertheless, since the inception of the SEC, there have been several high profile fraud cases involving senior leaders of public traded companies, perpetuated by breakdowns in the audit process imposed to detect misappropriation of funds (Livingston, 2003, p. 3). Though the SEC has exclusive delegation to govern regulations on U.S. stock and options exchange and U.S. national securities associations, financial fraud incidents resulting in losses for stockholders and bondholders proliferated with cases such as “McKesson & Robbins (1940),” “Continental Vending (1969),” and “National Student Marketing (1975)” (Callahan, n.d.a, p. 1; Livingston, 2003, p. 3). However, none such cases have had as stark of an effect on the U.S. stock and options exchange, and eroded investor confidence to the magnitude, as those events which began to unravel in the latter part of the 1990’s, namely the cases involving Enron Corporation, WorldCom, Tyco International and Adelphia (Donaldson, 2003, p. 3; Livingston, 2003, p. 4-5). The U.S.
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SEC (2003) advised that “accurate and reliable financial reporting lies at the heard of our disclosure-based system for securities regulation, and is critical to the integrity of the U.S. securities markets,” and that examination of financial reporting procedures through the audit process is paramount in maintaining a sound exchange market (p. 4). Within the examples provided herein, these organizations failed to provide “accurate and reliable” financial data to the public, and deceived investors by portraying a picture of robust and healthy finances, which resulted in enormous financial losses for many (U.S. SEC, 2003, p. 4). In reaction, the public at large demanded swift action by the U.S. Government to effect change to safeguard the remaining and future investments of securities holders (Livingston, 2003, p. 8). The U.S. Government’s response was the swiftly orchestrated reform entitled the Sarbanes-Oxley Act, ratified in 2002 (Livingston, 2003, p. 8). The essential tenets of the Sarbanes-Oxley Act of 2002 are “to enhance the integrity of the audit process and the reliability of audit reports on issuers ' financial statements,” “restore investor confidence in the capital markets by strengthening enforcement of the federal securities laws,” “improve… the tone set by top management..[supporting] integrity of the financial reporting process,” “improving disclosure and the financial reporting process,” and “focus by other gatekeepers in our capital markets on their proper roles” (Donaldson, 2003, p. 4, 7, 9, 10, 13). In addition to the sweeping reform to the financial auditing and reporting processes, the Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) …show more content…
Within this paper, we will examine the impact on the highest level of governance within the corporation, specifically the board of directors appointed audit committee, as well as the changes realized by the outside independent audit firms. Additionally, we will address the main advantages and disadvantages of the Act and counsel on modifications to enhance the effectiveness of the Act. Lastly, we will discuss the merits of legislations [ability/inability - tbd] to enforce financial statement
SEC (2003) advised that “accurate and reliable financial reporting lies at the heard of our disclosure-based system for securities regulation, and is critical to the integrity of the U.S. securities markets,” and that examination of financial reporting procedures through the audit process is paramount in maintaining a sound exchange market (p. 4). Within the examples provided herein, these organizations failed to provide “accurate and reliable” financial data to the public, and deceived investors by portraying a picture of robust and healthy finances, which resulted in enormous financial losses for many (U.S. SEC, 2003, p. 4). In reaction, the public at large demanded swift action by the U.S. Government to effect change to safeguard the remaining and future investments of securities holders (Livingston, 2003, p. 8). The U.S. Government’s response was the swiftly orchestrated reform entitled the Sarbanes-Oxley Act, ratified in 2002 (Livingston, 2003, p. 8). The essential tenets of the Sarbanes-Oxley Act of 2002 are “to enhance the integrity of the audit process and the reliability of audit reports on issuers ' financial statements,” “restore investor confidence in the capital markets by strengthening enforcement of the federal securities laws,” “improve… the tone set by top management..[supporting] integrity of the financial reporting process,” “improving disclosure and the financial reporting process,” and “focus by other gatekeepers in our capital markets on their proper roles” (Donaldson, 2003, p. 4, 7, 9, 10, 13). In addition to the sweeping reform to the financial auditing and reporting processes, the Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) …show more content…
Within this paper, we will examine the impact on the highest level of governance within the corporation, specifically the board of directors appointed audit committee, as well as the changes realized by the outside independent audit firms. Additionally, we will address the main advantages and disadvantages of the Act and counsel on modifications to enhance the effectiveness of the Act. Lastly, we will discuss the merits of legislations [ability/inability - tbd] to enforce financial statement