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Please describe in a minimum of six sentences what the Sarbanes-Oxley Act of 2002 is about. What famous accounting fraud was this act in a response to? Who has the authority regarding implementing and overseeing a whistle-blowing process? What are the requirements for auditors in regards to a publically traded organization?

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Elin Hessel
Elin HesselLv2
30 Sep 2019

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1–28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Client’s management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditors’ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditors’ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the client’s operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a company’s policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a company’s internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a company’s legal department.

GIVEN:

ENRON Scandal Issues:

Auditing and Accounting Issues

Creates a new oversight board to regulate independent auditors of publicly traded companies – a private sector entity operating under the oversight of the Securities and Exchange Commission;

Raises standards of auditor independence by prohibiting auditors from providing certain consulting services to their audit clients and requiring preapproval by the client’s board of directors for other non audit services;

Requires top corporate management and audit committees to assume more direct responsibility for the accuracy of financial statements;

Enhances disclosure requirements for certain transactions, such as stock sales by corporate insiders, transactions with unconsolidated subsidiaries, and other significant events that may require “real-time” disclosure;

Directs the SEC to adopt rules to prevent conflicts of interest that affect the objectivity of stock analysts;

Authorizes $776 million for the SEC in FY 2003 (versus $469 million in the Administration’s budget request) and requires the SEC to review corporate financial reports more frequently; and

Establishes and/or increases criminal penalties for a variety of offenses related to securities fraud, including misleading an auditor, mail and wire fraud, and destruction of records.

Pension Issues

Like many companies, Enron sponsors a retirement plan – a “401(k)” – for its employees to which they can contribute a portion of their pay on a tax-deferred basis. As of December 31, 2000, 62% of the assets held in the corporation’s 401(k) retirement plan consisted of Enron stock. Many individual Enron employees held even larger percentages of Enron stock in their 401(k) accounts. Shares of Enron, which in January 2001 traded for more than $80/share, were worth less than 70 cents in January 2002. Many employees’ retirement accounts were wiped out. The losses suffered by participants in the Enron Corporation’s 401(k) plan have prompted questions about the laws and regulations that govern these plans.CRS-5

Securities Analyst Issues

Securities analysts employed by investment banks provide research and make “buy,”“sell,” or “hold” recommendations. These recommendations are widely circulated and are relied upon by many public investors. Analyst support was crucial to Enron because it required constant infusions of funds from the financial markets. On November 29,2001, after Enron’s stock had fallen 99% from its high, and after rating agencies had downgraded its debt to “junk bond” status, only two of 11 major firm analysts rated itsstock a “sell.” Was analyst objectivity – towards Enron and other firms – compromised by pressure to avoid alienating investment banking clients?

Banking Issues

One part of the fallout from Enron's demise involves its relations with banks. Prominent banking companies, notably Citigroup and J.P. Morgan Chase, were involved in both the investment banking (securities) and the commercial banking (lending and deposit) businesses with Enron, and have suffered from Enron's collapse. The two activities had been separated by the 1933 Glass-Steagall Act, until P.L. 106-102 (the Gramm-Leach-Bliley Act) allowed their recombination. Observers have begun to question whether that 1999 repeal of Glass-Steagall en courage conflicts of interest and unsafe bank lending in support of the investment banking business with Enron.

QUESTION: what laws (official names) are involved throughout this scandal? (through a business law standpoint)

Case Study–A Practical Approach to Information CommunicationsTechnology IT Governance Committee: Assume that you are part of thehighly qualified IT Governance Committee employed by one of theUS’s largest pizza company named as ‘Mama’s Pizzeria’ a pizzacompany which is internationally recognized and one of thedelicious pizza company globally. Your IT Governance team comprisesof 5 members who are as follows: IT Governance team Member 1 -Chief Executive Officer (CEO) Member 2 - Chief Financial Officer(CFO) Member 3 - Chief Marketing Officer(CMO) Member 4 - ChiefInformation Officer(CIO) Member 5 - Chief Technology Officer CTO)Your IT Governance Committee is in-charge of governing the overalldevelopment and operation of IT/IS systems and has severalimportant responsibilities such as:  Aligning IT investments tobusiness strategy. Investing funds and resources in the mostbeneficial IT systems will enhance the long-range goal of achievingthe business strategy.  Budgeting funds and personnel for the mosteffective use of the IT systems.  Overseeing and prioritizingchanges to IT systems. Within organizations, many user groups willconcurrently request improvements or changes to their sub- systemwithin the IT system and prioritizing these requests according tothe best match to the business strategy and the feasibility ofdesigning, developing and implementing the necessary changes. Developing, monitoring and reviewing all IT operational policies.The organization will maintain policies and descriptions ofprocedures for operating and developing its IT systems. Developing, monitoring and reviewing security policies. Theorganization will maintain policies and descriptions of proceduresrelated to security.  Establishing systems development processthat controls the initiation, approval, development and maintenanceof those changes. This process called the systems development lifecycle (SDLC) can be generally described as the systematic stepsundertaken to plan, prioritize, authorize, oversee, test andimplement large-scale changes to the IT system. Your IT GovernanceTeam comprising of the above members’ and positions’ has beenengaged to carry out its duties as per the requirements in thesections hereafter. Section 4 – To be completed by the ‘ChiefInformation Officer’ of the IT Governance Team You are the ChiefInformation Officer of Mama’s Pizzeria involved as part of the ITGovernance team to provide your opinion and solutions for thefollowing questions: This section presents a process map (Exhibit4.1), a document flowchart (Exhibit 4.2), and a data flow diagram(Exhibit 4.3) for a small, local restaurant. In those exhibitsmanual records and documents as well as manual processes aredepicted. On the basis of the case information and the 3 exhibitsmentioned, complete the following requirements: Required: To answersome of the questions here, you may have to do research about ERPsystems on the Internet. One example of a website with informationabout accounting software is www.accountingsoftware411.com orwww.2020software.com 4. What advantages could Mama’s Pizzeriaexpect by upgrading to an ERP system? 5. As Mama’s Pizzeriaconsiders modules to purchase, which four or five modules do youbelieve would be most critical? Why? 6. Which method ofimplementation of an ERP system do you suggest for Mama’s Pizzeria?Why? 7. Recommend two or three ERP systems that would beappropriate for Mama’s Pizzeria. be specific with respect to thename of the ERP software system and the provider company. Whenmaking these recommendations consider the size of Mama’s Pizzeriaand, therefore, what it might be able to afford.

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