Question

Write a two to three (2-3) page paper in which you: choose a US company: Assess the factors that contributed to the financialstatement restatement, signifying the executive management team’s attitude toward the restatement. Suggest how the restatement may have been avoided during the initial reporting process. Explain the impact to the company’s stock price when the restatement was released and to future earnings forecast, indicating whether or not you believe the impact to the stock price was justified. Evaluate the restatement in terms of management’s ethical violations according to the requirements of the Sarbanes-Oxley Act, providing recommendations to management on how to avoid these problems in the future. Provide support for your recommendations. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.

Answer 1

1)The Sarbanes-Oxley Act requires that the management of public companies assess the effectiveness of the internal control of issuers for financial reporting. Section 404(b) requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls.  

The AICPA has consistently urged implementation of Section 404(b) for all publicly held companies. Section 404(b) has led to improved financial reporting and greater transparency. The AICPA believes that all investors in public companies should have equal benefit of the same protections. Some small companies have argued that the regulatory cost and burden of having the assessment outweighs the benefit to investors.

During consideration of the bills that became the Dodd-Frank Wall Street Reform and Consumer Protection Act, there were several amendments offered that would have exempted a large number of public companies from section 404(b). Ultimately, there was an exemption enacted for non-accelerated filers (companies with less than $75 million in public float). These smaller issuers were never required by the SEC to comply with section 404(b) since enactment of Sarbanes-Oxley Act.

There were also 2 studies required by Dodd-Frank.   The first required the SEC to conduct a study on the burden caused by section 404(b) compliance for companies with a market capitalization between $75 million and $250 million. The SEC study recommended maintaining existing investor protections of Section 404(b) for companies with market capitalization above $75 million and encouraged activities that have potential to further improve both the effectiveness and efficiency of Section 404(b) implementation.