Question

Based on the requirements of the Sarbanes-Oxley Act and SEC reporting requirements for publically traded companies,

Write a four to five (4-5) page paper in which you:

Assess the roles of the Board of Directors and Chief Executive Officer of a public company for establishing an ethical environment that generates quality accounting and reliable financial reporting for use by shareholders and investors. Provide support for your assessment.

Recommend a strategy for a CEO to implement, leading to an ethical environment that leads to high-quality accounting, reporting, and forecasting. Provide support for your recommendation.

Suggest how corporate management can provide assurances to investors that the performance forecast and expected earnings will be realized, minimizing the volatility of the stock price. Provide support for your suggestions.

Evaluate the consequences to a publically traded company when there is a lack of quality within financial accounting and reporting, indicating how these consequences may be minimized. Provide support for your answer.

Assess the requirements of the Sarbanes-Oxley Act related to accounting quality, indicating whether or not you believe the requirements are sufficient to protect stockholders and potential investors. Provide support for your position.

Answer 1

CODE OF ETHICS FOR THE CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS

Code of Ethics applicable to its Chief Executive Officer and senior financial officers to promote honest and ethical conduct are:

1. The Chief Executive Officer and each senior financial officer shall, at all times, conduct himself or herself in an honest and ethical manner, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.
2. The Chief Executive Officer and each senior financial officer are responsible for full, fair, accurate, timely and understandable disclosure in: (a) the reports and documents that the Company files with, or submits to, the SEC, and; (b) the Company’s other communications with the public, including both written and oral disclosures, statements and presentations. It shall be the responsibility of the Chief Executive Officer and each senior financial officer to promptly bring to the attention of the Company’s Board or Audit Committee any material information of which he or she may become aware that may render the disclosures made by the Company in its public filings or other public communications materially misleading, and to assist the Company’s Board and Audit Committee in fulfilling their responsibilities.
3. The Chief Executive Officer and all senior financial officers shall not, directly or indirectly, take any action to coerce, manipulate, mislead or fraudulently influence any independent, public or certified public accountant engaged in the performance of any audit or review of the financial statements of the Company that are required to be filed with the SEC if such person knew (or was unreasonable in not knowing) that such action, if successful, could result in rendering such financial statements materially misleading. For purposes of this Code of Ethics, actions that “if successful, could result in rendering such financial statements materially misleading” include, but are not limited to, actions taken at any time with respect to the professional engagement period to coerce, manipulate, mislead or fraudulently influence, an auditor:

• To issue a report on the Company’s financial statements that is not warranted in the circumstances (due to material violations of generally accepted accounting principles, generally accepted auditing standards or other applicable standards);
• Not to perform audit, review or other procedures required by generally accepted auditing standards or other applicable professional standards;
• Not to withdraw an issued report; or
• Not to communicate matters to the Company’s Audit Committee.

1. The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the Company’s Audit Committee any information he or she may have concerning

• Significant deficiencies or control weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; or
• Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

1. The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the Company’s General Counsel or the Chief Executive Officer or, where he or she deems it appropriate, directly to the Company’s Board or Audit Committee, any information he or she may have concerning any violations of this Code of Ethics.
2. The Company intends to prevent the occurrence of conduct not in compliance with this Code of Ethics and to halt any such conduct that may occur as soon as reasonably possible after its discovery. Allegations of non-compliance will be investigated whenever necessary and evaluated at the proper level(s). Those found to be in violation of this Code of Ethics are subject to appropriate disciplinary action, up to and including termination of employment. Criminal misconduct may be referred to the appropriate legal authorities for prosecution.

Assurance to be provided by the corporate management to the investors regarding the performance forcast is:

1. Performance & financial management involves the deployment of various tools, techniques, and systems to help an organization implement its strategies and plans, and support the achievement of organizational objectives. Successfully executing strategy involves various disciplines, areas of capability, including planning and forecasting, funding and resource allocation, revenue and cost management, managing performance against objectives, and improving operational management and utilization of assets.
2. Effective performance & financial management requires:

• engaging people to determine their information needs;
• implementing processes and systems to collect the right data;
• turning the data into information and insights; and
• presenting it in the best way.

1. To manage and deploy resources to deliver organizational objectives is a vital contribution of finance and management professionals, either in their capacity as the employee of, or as an advisor or consultant to, an organization.
2. While performance & financial management is critical regardless of size of organization, the formality, style, and scope of the approach will differ. SMEs may adopt less formal performance & financial management methods but it is essential they and their advisers understand performance & financial management methods and learn the different techniques to ensure success.
3. Professional accountants’ purview encompasses the application of tools and techniques to improve performance & financial management of organizations. They must have organizational and environmental awareness, and be cognizant and knowledgeable of other disciplines, such as technology, people and project management, and managing, measuring, and linking financial and non-financial activities and performance.
4. Technology and automation are also creating more and better information and analysis to support decision making and to help improve performance. Many accountants have moved into broader and more commercial roles where they can use their skillset to combine financial expertise and business understanding to help deliver sustainable organizational success for their employer or client.

Expected Earnings

1. The basic measurement of earnings is earnings per share. This metric is calculated as the company's net earnings—or net income found on its income statement—less dividends on preferred stock, divided by the number of outstanding shares. For example, if a company (with no preferred stock) produces a net income of $12 million in the third quarter and has eight million shares outstanding, its EPS would be $1.50 ($12 million /8 million).
2. Earnings forecasts are based on analysts' expectations of company growth and profitability. To predict earnings, most analysts build financial models that estimate prospective revenues and costs.
3. Many analysts will incorporate top-down factors such as economic growth rates, currencies and other macroeconomic factors that influence corporate growth. They use market research reports to get a sense of underlying growth trends. To understand the dynamics of the individual companies they cover, really good analysts will speak to customers, suppliers and competitors. The companies themselves offer earnings guidance that analysts build into the models.
4. To predict revenues, analysts estimate sales volume growth and estimate the prices companies can charge for the products. On the cost side, analysts look at expected changes in the costs of running the business. Costs include wages, materials used in production, marketing and sales costs, interest on loans, etc.
5. Analysts' forecasts are critical because they contribute to investors' valuation models. Institutional investors, who can move markets due to the volume of assets they manage, follow analysts at big brokerage houses to varying degrees.

Minimization of Volatility:

Volatility: Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

1. The best way to reduce investor nervousness is also largely the best way to maximize long-term returns. A critical component of effective investment is to strike an effective balance between stabilized returns, and price upsides (where the higher the upside against the market, the more volatile the price will generally be over time).
2. The right dividend stocks to own are largely those stocks that produce reliable income in the form of stable dividend payments while preserving the maximum amount of underlying value in both bull and bear markets. The truth of the matter is that investors are generally better off when their focus is primarily on these income equities.
3. Another productive screen that can be used is a standard deviation screen, which largely measures the volatility of a stock (the change in value of a stock above or below median over time). And while volatility in the common vernacular generally denotes a negative, a certain form of volatility is actively sought out by investors: that is, volatility in the profitable direction.
4. One of the fundamentals of investing is to not try to time the market. The best overall return rates occur when an investor is committed to rational strategies, and when an investor is largely continuing to produce returns on their money. We all know that cash holdings decay at the rate of inflation, so mistiming the market can produce downsides that take years to recover.
5. To determine the precise companies to invest in, it is important to pay attention to payout ratios and standard deviation, along with growth rate. These factors make up the fundamentals of core investments, and are capable of being analyzed by nearly anybody.

Consequences of lack of quality within financial accounting and reporting of an publicly traded company are:

It can result from the failure of management’s selection of accounting methods. A management team hould be able to guarantee to the board of directors the accuracy and quality of a company’s financial statements and accounting practices. They should be able to design and implement a robust internal control system to prevent poor reporting by watching for the relevant details in financial reporting.A management team is wasting everyone’s time when they report poor financial statements. The time it takes to pull this false information together and then the time necessary for correcting that information if found hurts the bottom line. recious hours and days that could be used to concentrate on building profitable sales growth go down the drain. This time could have been spent making money. Another long and improper use of reporting is capturing a variety of revenue streams into one account. Those streams should be segregated, allowing the CFO to know what areas of the business are doing the best or not. Misclassification of expenses into the overhead, rather than the cost of goods can mislead the gross margin if not allocated properly. For example, if a company wants to launch a new product, managers will try to determine the sales to off-set the cost and then to make a profit. If they don’t have the proper numbers on gross margin, they will make a decision based on bad numbers. Poor reporting could result in the failure of a new product. By a company addressing the reporting issues, management can make sound profitable decisions. Assess the requirements of the Sarbanes-Oxley Act related to accounting quality, indicatingwhether or not you believe the requirements are sufficient to protect stockholders and potential investors. Provide support for your position.Sarbanes-Oxley Act has been widely known for the strengthening of two major areas to protect investors. One the CEO and CFO have more responsibility and accountability for financial disclosures and related controls.