Question

In: Operations Management

Government is cleaning up the way companies do business after accounting and governance scandals rocked investor...

Government is cleaning up the way companies do business after accounting and governance scandals rocked investor confidence and damaged the reputation of companies large and small. The Sarbanes-Oxley Act (SOX) of 2002 was enacted in response to the high-profile Enron and World Com financial scandals to protect shareholders and the public from accounting errors and fraudulent practices by organizations. One primary component of the SOX is the definition of which records are to be stored and for how long. For this reason, the legislation not only affects financial departments, but also IT departments whose job it is to store electronic records. SOX states that all business records, including electronic records and electronic messages, “must be saved for not less than five years.” The consequences for noncompliance are fines, imprisonment, or both. Three rules of Sarbanes-Oxley affecting the management of electronic records address the following areas: A. The destruction, alteration, or falsification of records. It states that persons who knowingly alter, destroy, mutilate, conceal, or falsify documents shall be fined or imprisoned for not more than 20 years, or both. B. The retention period for records storage. Best practices indicate that corporations securely store all business records using the same guidelines set for public accountants. Organizations shall maintain all audit or review work papers for a period of five years from the end of the fiscal period in which the audit or review was concluded. C. The business records and communications that need to be stored, including electronic communications. IT departments are facing the challenge of creating and maintaining a corporate records archive in a cost-effective fashion that satisfies the requirements put forth by the legislation. Essentially, any public organization that uses IT as part of its financial business processes must implement IT controls to comply with SOX. BENEFITS FROM SARBANES-OXLEY Many businesses are promoting the benefits they received from implementing SOX. General Electric Co., which spent about $30 million on SOX compliance, has added controls that boost investors’ confidence in the company. United Technologies used SOX to standardize bookkeeping audits in its disparate businesses around the world. The biggest advantage of all, though, may be the greater confidence investors have in financial results. Some officials believe it will take another two years (around 2008) for companies, auditors, and regulators to apply the law efficiently. That might appear to be a long time, and it may seem to be expensive; however, it is a small price to pay to help organizations run smoothly and renew investor confidence. IMPLEMENTING SARBANES-OXLEY Ultimately, Sarbanes-Oxley compliance will require a great deal of work among all departments. Compliance starts with running IT as a business and strengthening IT internal controls. The following are a few practices organizations can follow to ensure compliance with the Sarbanes- Oxley Act. Overhaul or upgrade financial systems to meet regulatory requirements for more accurate, detailed, and timely filings. Examine the control processes within the IT department and apply best practices to comply with the act’s goals. For example, segregation of duties within the systems development staff is a widely recognized best practice that helps prevent errors and out-right fraud. The people who code program changes should be different from the people who test them, and a separate team should be responsible for changes in production environments. Ensure that information system customization are not overriding controls by working with internal and external auditors. Homegrown financial systems are fraught with potential information-integrity issues. Although leading enterprise resource planning (ERP) systems offer audit-trail functionality, customization of these systems often by pass those controls. Work with the CIO, CEO, CFO, and corporate attorneys to create a document- retention-and-destruction policy that addresses what types of electronic documents should be saved, and for how long. Required: i. What do you think an unethical accountant or manager at Enron thought were the rewards and responsibilities associated with his or her job

Solutions

Expert Solution

The unethical mangers, accountants, or other employees think that the basic pay is less than their expectations. An unethical employee wants something extra from the job and the workplace. It is unethical because the employee starts to adopt corruptive and disruptive practices for gaining more. The greedy and unethical employees go to any limits to gain more than what the company offers as the basic pay or salary. For instance, if an employee at Enron earns 1,00,000 bucks as the salary, the expenses exceed the basic pay. The employee tends to earn more than the salary or even bonuses in the company. So, the employee tends to involve in corruption and unethical or illegal practices. The employee also can sell the vital information of the company that only limited members know. Hence, it is a drawback for the company to hire any unethical employee in the team. It is also essential to supervise the work and tasks of all the employees. The managers cannot define the motive of the employees at the time of recruitment and selection. The unethical employees might also force the other employees to complete their tasks by offering them more money and incentives. The superior managers take advantage of unethical practices, and gains from these practices to influence the employees at a secondary level to complete their respective tasks. Hence, it is unethical also to involve the entire team in the company. However, the managers can only ask for a basic salary from the company.


Related Solutions

1. Government is cleaning up the way companies do business after accounting and governance scandals rocked...
1. Government is cleaning up the way companies do business after accounting and governance scandals rocked investor confidence and damaged the reputation of companies large and small. The Sarbanes-Oxley Act (SOX) of 2002 was enacted in response to the high-profile Enron and World Com financial scandals to protect shareholders and the public from accounting errors and fraudulent practices by organizations. One primary component of the SOX is the definition of which records are to be stored and for how long....
After Enron, WorldCom, and other major corporate scandals that rocked America in the recent past, it...
After Enron, WorldCom, and other major corporate scandals that rocked America in the recent past, it seemed that nothing would surprise investors or regulators. However, almost everyone was shocked by revelations that as many as 20 percent of all public corporations may have allowed their officers and directors to “backdate” their stock option awards and account for the awards improperly. For a time, hardly a day went by without another public company’s fraudulent stock option practices being revealed. A stock...
How do you feel that Enron and Worldcom scandals impact investor trust and the accounting profession?
How do you feel that Enron and Worldcom scandals impact investor trust and the accounting profession?
What are the five issues concerning governance issues in private companies in the field of accounting...
What are the five issues concerning governance issues in private companies in the field of accounting and tax practice ? And What are the accountants role regarding the issues ?
Ethics in Business and Accounting Question Do you think that companies should have an ethical or...
Ethics in Business and Accounting Question Do you think that companies should have an ethical or legal responsibility to show the total price that you will pay in the initial advertisement?
Gold is up; stocks are down and cleaning product companies are doing well. Can anyone tell...
Gold is up; stocks are down and cleaning product companies are doing well. Can anyone tell me why is this virus affecting the stock market in the USA? Unemployment soars and Corona virus epicenter moves to the US. Just curious for your thoughts on the potential ramifications, both for the economy of the US in GDP and also the reported tensions between China and US trade? The coronavirus has affected the entire economy leaving businesses around the world counting costs....
Ethics in Business and Accounting Question Do you think the government should take more responsibility and...
Ethics in Business and Accounting Question Do you think the government should take more responsibility and come up with more imposed regulation in favor of labor unions?
1. The three categories of the accounting equation are: 2. Companies need a way to organize...
1. The three categories of the accounting equation are: 2. Companies need a way to organize their accounts so they use a chart of accounts. Accounts starting with 1 are usually Assets, 2 – Liabilities, 3 – Equity, 4 – Revenues, and 5 – Expenses. The second and third digits in account numbers indicate: 3. A chart of accounts and a ledger are similar in that they both list the account names and account numbers of the business. A ledger,...
1. Discuss the financial statements that are prepared in government accounting. 2. In what way are...
1. Discuss the financial statements that are prepared in government accounting. 2. In what way are they different from those prepared in business accounting?
a. Why do major companies use accrual accounting?
  a. Why do major companies use accrual accounting?b. Do you think that the owner of the food stand on 45th and Fifth Avenue used accrual accounting or the other type of accounting?c. What is the other type of accounting?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT