Sarbanes-Oxley Act Peggy Baker Liberty University May 1, 2011 Abstract Financial statements are a means of communication between companies and investors. The information provided in financial statements has not always been true. The collapse of companies such as Enron, the scandals that followed, and the distrust from the public caused lawmakers to create the Public Company Accounting Reform and Investor Protection Act of 2002. This act is now known as the Sarbanes-Oxley Act. The Sarbanes-Oxley Act’s (SOX) main provisions include: (1) oversight board, (2) corporate executive accountability, nonaudit services, retention of work papers, auditor rotation, conflicts of interest, hiring of auditors, and internal controls.
As a result, multitudes became jobless, and the trend went from bad to worse throughout the decade. these accounting anomalies was the heart of all that frauds. The accountancy profession and the role it plays came into focus. Accountants have helped in misleading the public by certifying and endorsing that the financial reports of fraudulent companies were all true and 100% correct. Investors placed their faith in the accompanying audit reports, which
These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook the publics’ faith in the security markets. When examining the SOX act you can see that since 2002 many things have changed in the past eight years. Corporate governance is one of many things that have changed; Public companies must now have a totally separate audit committee composed of entirely independent directors and must contain one financial expert. Security fraud now has much more extreme punishments for those who commit or conspire to commit fraud. Since the introduction of SOX auditors of public companies must keep documentation of an audit for seven years, destruction of any documentation or evidence that someone has committed fraud is now punishable by jail time and fine.
The central compliance issue that they are working to curtail is their many violations of the Servicemembers Civil Relief Act (SCRA). Since 2003, the company has undergone scrutiny about overcharging servicemembers and recently returned servicemembers from active duty, which caused many of the servicemembers to face the possibility of a bank foreclosure. When this issue was brought to the company’s attention, J.P Morgan Chase identified two problems. The first was the fact that four thousand-five hundred servicemembers were charged interest and fees that were way above the regulatory cap. Secondly, J.P Morgan Chase
Between the “Black Tuesday” and November thirteenth over 30 billion dollars had disappeared from the American economy. It took nearly twenty-five years for many of the stocks to recover. It caused many banks to fail which led to failed businesses and loss of jobs as well as the start to the Great Depression. Occupy Wall Street—started on September 17, 2011 in New York City’s Wall Street financial district—represents a real anger in the country caused by the effect of oppressive student loans, massive debt, lost jobs, and ultimately lost hope in the nation and economy. The main issues are social and economic equality, greed, corruption, and the excessive influence of corporations on government.
Case 37: American International Group (AIG) and the Bonus Fiasco Synopsis: In September 2008 American International Group started to fall under the financial crisis in America. The United states enter in a recession in the beginning of 2008 but it didn’t hit until the end of that year. Then all big companies started falling and going bankrupt. They decide to help stop the collapse of the America economy by presenting a bailout package of companies in need. The government created a 750 billion bailout package for American companies that are going under.
It’s scary that although Northrop Grumman has been implicated in numerous scandals continues to have a military contract. It seems as if Northrop Grumman’s subsidiaries followed suit after its parent company. For example, Ingalls Shipbuilding , a subsidiary of Northrop Grumman, had to pay $2.25 million dollars in a settlement with the Navy in a False Claims Act suit. Ingalls reportedly fraudulently exploited an accounting practice in order to shift certain costs to Navy contracts, instead of the Israeli contracts. http://en.wikipedia.org/wiki/Northrop_Grumman#Controversies http://contractormisconduct.org/index.cfm/1,73,221,html?ContractorID=42&ranking=4 http://contractormisconduct.org/ass/contractors/42/cases/196/460/harkindefazio.pdf
The accounting practices created a scandal in which the companies were able to hide information from investors. This allowed the stock prices to remain high even when the company was struggling. When the companies collapsed, investors became worried about the overall securities markets. The Sarbanes-Oxley act is a response to the corruption with the attempt to improve business accounting regulations. The act is considered the most extensive increase in regulations since the Security and Exchange Act of 1934.
The reason, a background screening firm called ChoicePoint, which is the largest screening firm in the United States for corporate employers, had reported to Walgreens that Mr. Pendergrass had a record of “cash register fraud and theft of merchandise” totaling over $7,000. These accusations were from his previous job at Rite Aid in 2005, where his employer accused him of theft and underpaying for DVDs. Mr. Pendergrass denied the allegations and wrote
Lehman Brothers file bankruptcy, Merrill Lynch was bought out by Bank of America, and AIG, an insurance company that sold insurance to investment banks to cover the downturn of investments, was on the brink of financial distress along with so many other failing financial institutions. Paulson, knowing that something had to be done to stop the fall of the economy, along with Bernanke & Geithner basically went to Congress and asked for 700 billion to bail out banks. This was the creation of TARP (Troubled Asset Relief Project). Paulson was asking Congress to approve a program the size of the entire federal budget (which took around 15 months to prepare) in just a couple of week’s time. All of the big banks participated in TARP.