Everand Logo

Welcome to Everand!

  • Discover millions of ebooks, audiobooks, and so much more with a free trial

    Only $11.99/month after trial. Cancel anytime.

    Sarbanes-Oxley Simplified
    Sarbanes-Oxley Simplified
    Sarbanes-Oxley Simplified
    Ebook165 pages2 hours

    Sarbanes-Oxley Simplified

    By Mike Morley

    5/5

    ()

    Read preview

    About this ebook

    Ignorance is no longer an excuse. The Sarbanes-Oxley Act of 2002 makes CEO's and CFO's personally responsible, not only for the accuracy of their financial statements, but also for reporting on the effectiveness of their company's internal controls.

    This fast and easy-to-read revised 2nd edition of this book describes, in plain language, what the U.S. Sarbanes-Oxley Act says, it explains why the Act came into effect, and shows what companies, and company executives, need to do to ensure that they are in compliance with the Act. This book will help you to understand your obligations under the Act, and will enable you to establish and maintain financial controls using simple, common-sense guidelines that every company, private as well as public, should follow.

    LanguageEnglish
    PublisherMichel Morley
    Release dateMar 4, 2011
    ISBN9781926826240
    Sarbanes-Oxley Simplified

    Read more from Mike Morley

    Related to Sarbanes-Oxley Simplified

    Related ebooks

    Business & Financial Law For You

    View More
    View More

    Related podcast episodes

    Related articles

    • Article

      Fiduciary Rule Struck Down But Plan Sponsors Not Off the Hook

      Apr 23, 2018

      On March 15, 2018, the 5th Circuit Court vacated the entire DOL fiduciary rule. The decision essentially nullifies the rule, which was designed to require financial professionals to put their clients' needs ahead of their own when advising them on re

      4 min read

    • Article

      How to Avoid Being Robbed Blind After You Die

      Jul 16, 2018

      In February 2018, prominent NYC attorney Steven Etkind was arrested on charges of embezzling millions of dollars from a deceased client's estate. The client's will directed the creation of charitable trusts (of which Etkind served as co-trustee), fun

      5 min read

    • Article

      Busting Trust Myths

      Sep 3, 2020

      “Trust busting” is the term often used to describe instances where a court finds in favour of a claimant trying to access trust assets. Here, though, I do not want to talk about “trust busting”. Instead I want to bust some trust myths. There has been

      2 min read

    • Article

      The Debt Trap

      Jan 5, 2024

      The Debt Trap
      6 min read

    • Article

      7 Secrets Financial Advisers Won't Tell You

      Jun 3, 2019

      Your financial adviser is someone you need to trust, and the foundation for that trust is knowledge. You need to know exactly who you're working with, what standards they are held to and how they are making their money. Even if you think your advise

      5 min read

    • Article

      Don’t Bank On It

      Sep 30, 2019

      Our post-2008 world of near-zero interest rates has spawned many unusual financial phenomena. We now have cryptocurrencies and government bonds that offer negative yields – in other words, you pay for the privilege of lending the government money. Th

      3 min read

    • Article

      Beneficiary Designations: 5 Critical Mistakes to Avoid

      Apr 5, 2019

      Many people might not realize that their will does not control who inherits all of their assets when they die. Many assets pass by beneficiary designation -- which is the ability to fill out a form with the financial company holding the asset and na

      3 min read

    • Article

      'Puffery' Or Lies? Wells Fargo's Vows On Scandals

      Nov 13, 2018

      If you've ever wondered how businesses can get away with making transparently false or deceptive claims about themselves or their products - "The Best Tasting Juice in America," Wrigley's gum is "for whiter teeth, no matter what," etc., etc. - the an

      5 min read

    • Article

      When A Business Goes Bust

      Aug 2, 2023

      When A Business Goes Bust
      4 min read

    • Article

      5 Top Tips About Securing Loans For Your Side Hustle

      Jul 16, 2021

      If you want to borrow money, whether it’s from your uncle or the bank, you’ll need to persuade the lender that you’ll be able to make money from your side hustle in the long term to pay back your debt. Prepare well before you apply for the loan. If a

      3 min read

    • Article

      To Trust Or Not To Trust

      Aug 1, 2019

      To Trust Or Not To Trust
      6 min read

    • Article

      What Assets Should Be Included in Your Trust?

      Jan 16, 2022

      One of the largest financial planning misconceptions people hold is that having a will ensures their property will transfer quickly to their heirs. The truth is, whether you have a will or not, your assets will go through the probate process when you

      5 min read

    • Article

      Questions for Heidi Franken, Deputy Director of Enforcement, Ontario Securities Commission

      Jan 1, 2018

      You head up the Ontario Securities Commission’s new Office of the Whistleblower. What is its mission? The program is primarily an investor protection policy aimed at serious securities misconduct. This misconduct can be difficult to detect without th

      6 min read

    • Article

      Trusts: Bluffing Just Got Harder

      Jul 30, 2020

      I have been genuinely surprised recently by the number of baby boomers who are seemingly considering winding their trusts up as they move into retirement. Often stating they “don’t need them anymore” or are tired of the administration and the cost of

      3 min read

    • Article

      What You Need to Know About the Shadow Banking System Now

      Jun 21, 2019

      The term "shadow banking" often elicits thoughts of shady back-alley dealings and loan sharks waiting to take drastic measures against debtors who can't pay. While that makes for an interesting story, it couldn't be further from the truth. Most cons

      6 min read

    Related categories

    Reviews for Sarbanes-Oxley Simplified

    5/5

    1 rating0 reviews

    What did you think?

    Tap to rate

    Review must be at least 10 words

      Book preview

      Sarbanes-Oxley Simplified - Mike Morley

      Sarbanes-Oxley Simplified

      Revised 2nd Edition

      by

      Mike Morley, CPA

      Smashwords Edition

      Published by Nixon-Carre Ltd. on Smashwords

      Copyright © 2011 by Mike Morley

      Smashwords Edition, License Notes

      This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each person you share it with. If you're reading this book and did not purchase it, or it was not purchased for your use only, then you should return to Smashwords.com and purchase your own copy. Thank you for respecting the author's work.

      All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval system without written permission from the author, except for brief passages quoted in a review.

      Published by Nixon-Carre Ltd. Toronto, ON

      www.learnancientwisdom.com

      www.mikemorley.com

      Disclaimer: Nixon-Carre Ltd. does not participate in, endorse, or take any responsibility for any private business transactions between the author and the public. This publication is sold with the understanding that the publishers are not engaged in rendering legal, medical or other professional advice. The information contained herein represents the experiences and opinions of the author, but the author or the publisher are not responsible for the results of any action taken on the basis of information in this work, nor for any errors or omissions.

      Table of Contents

      Introduction

      Chapter 1 - The Birth of Sarbanes-Oxley

      Chapter 2 - The PCAOB

      Chapter 3 - Corporate Responsibilities

      Chapter 4 - The Events that Preceded Enron

      Chapter 5 - Enhancing Investor Confidence

      Chapter 6 - Conflict of Interest

      Chapter 7 - The Compliance Process

      Chapter 8 - Information Technology

      Chapter 9 - Inventory

      Chapter 10 - Accounts Receivable

      Chapter 11 - Accounts Payable

      Chapter 12 - Assets

      Chapter 13 - Bill 198 in Canada

      Chapter 14 - Internal Reporting

      Chapter 15 - Living with Sarbanes-Oxley

      About the Author

      Introduction

      The Sarbanes-Oxley Act of 2002, which makes company executives personally and criminally responsible for the financial disclosures of their US publicly traded companies, has been with us for a number of years. This second edition of this book is intended to update you on changes and to give you some pointers about how the SEC is enforcing the Act.

      The SEC has given itself a lot of leeway when it comes to enforcing Sarbanes-Oxley. This unfortunately makes it more difficult for executives and auditors to know where the line they must not cross actually is. Although the SEC is working hard to improve its due diligence, their limited resources make it difficult to be watching every company. It has been helped to a certain extent by the current economic downturn which has exposed many fraudulent schemes that counted on increasing sales and apparent revenue growth to succeed.

      Sarbanes-Oxley’s limited success in reducing the number and extent of fraud cases since its enactment is proof that the resourcefulness and ingenuity of human nature will always win out.

      Mike Morley

      www.mikemorley.com

      Chapter 1: The Birth of Sarbanes-Oxley

      A Simple Solution to A Complex Problem

      Sarbanes-Oxley is a U.S. law that came into effect July 30, 2002 to strengthen corporate governance and restore investor confidence. Sponsored by Maryland Senator Paul Sarbanes and Ohio Congressman Michael Oxley, the Act is intended to provide a strong deterrent to those individuals who might be tempted to manipulate corporate financial data for their own gain. The penalties imposed by the Act include substantial fines and significant prison terms.

      Ignorance is no longer an excuse. The Act makes CEO’s and CFO’s personally responsible not only for financial statements that accurately reflect the financial condition of the company, but also makes them responsible for setting up and maintaining systems that ensure that they actually know the truth about what is going on in the company. This requirement is a brilliantly simple solution to the ever present problem of fraud.

      In the past, investors and lenders trusted executives of large, reputable public companies, investment banks, credit rating agencies, and, most of all, large auditing firms, to provide them with accurate financial information on which to make sound investing and lending decisions. Unfortunately, as we now know, many of these players traded their principles for money. Many had been profiting from unethical, if not downright illegal, practices for some time before Enron came crashing down. The collapse of Enron made it impossible for the US government to continue to ignore what was going on. Legislators were forced to take action in order to earn back the trust of investors.

      Enron: The Destruction of Investor Confidence

      The largest corporate bankruptcy in U.S. history (Enron) shook the very foundation upon which the securities exchange system was founded. The report card that investors and lenders used to make their decisions, the audited financial statement, could no longer be trusted. Investors and lenders lost confidence in public company senior management to tell them the truth.

      Investors had trusted the accounting firm of Arthur Andersen, LLP, Enron’s auditor, to be their watchdog. However, Arthur Andersen, LLP, was receiving significant consulting contract revenue from Enron, in addition to being their auditing firm. SEC investigators ultimately concluded that this conflict of interest contributed in large part to Arthur Andersen, LLP’s, decision not to disclose Enron’s contingent liability arising out of certain loan guarantees. The companies whose loans they were guaranteeing were Special Purpose Entities (SPE) that happened to be owned by Enron’s CFO.

      Special Purpose Entities

      An SPE is a legal entity created by another entity (a sponsor) to carry out a specified purpose or activity. An SPE is often a financing vehicle that allows a sponsor entity to transfer assets to the SPE in exchange for cash, including prepay transactions, which are transactions that involve a contract for a service or product to be delivered at a later date. In other words, the SPE would borrow money to sell a service or product and recognize the revenue although the service had not yet been delivered.

      Off-Balance-Sheet Items

      Section 401 of the Act stipulates that off-balance-sheet transactions must be disclosed. In Enron’s case, because these loans were recorded on the SPE’s balance sheet instead of Enron’s, Enron appeared to be less debt ridden than it actually was, although it was still liable if the SPE defaulted on the loan. Enron used the lack of disclosure to hide the real indebtedness of the company.

      In order for the scheme to work, the investment banks that provided the loans to the SPE’s had to keep quiet, and they did. The investment banks were related to the credit rating agencies that gave Enron a good rating right up to four days before its bankruptcy. As a result of this complicity on the part of all the players involved, investors no longer trusted the companies, the auditors, the investment banks, and the credit rating agencies.

      Enron was by no means the only company whose questionable accounting practices illustrated the need for stronger regulations. Before Enron, especially in the high tech bubble of the 1990’s, there was an ever-growing pressure for companies to continually beat expectations. Expectations were met and exceeded, even if it meant manipulating financial data. In addition, because stock options were a large part of executive compensation packages, manipulating financial information to produce increasing stock prices proved too tempting for some executives who became millionaires almost overnight.

      Revenue Recognition

      In order for public companies to continue beating expectations and keep the stock price going up, (which allowed executives to collect big bonuses), one of the techniques they used was to manipulate the timing of revenue. Revenue recognition is supposed to be based on GAAP (Generally Accepted Accounting Principles).

      Conservatism is one of the GAAP principles. It says that, when in doubt, do not recognize the revenue until you are sure. Unfortunately, some public companies anticipated recognition of revenue by including it in their current period instead of waiting for the evidence that revenue had actually been earned. As well, some companies received asset-financing money but classified it as revenue, although there was no evidence to support this accounting treatment.

      Lack of Public Confidence

      Investors felt betrayed by the accountants and auditors they had depended upon to be the gatekeepers. Auditors were supposed to be disinterested third parties who could be relied upon to ring the alarm if something was not right. Investors and lenders were let down also by the investment banks and the credit rating agencies whose expertise was never in question. The lack of confidence in the established financial reporting system threatened the ability of public companies to obtain equity financing from public securities exchanges.

      This lack of confidence in public company financial statements was a crisis that

      Enjoying the preview?
      Page 1 of 1