Chapter 5-1. Chapter 5-2 Accounting Information Systems, 1 st Edition Corporate Governance and the Sarbanes- Oxley Act.

Chapter 5-1

Chapter 5-2 Accounting Information Systems, 1st Edition

Corporate Governance and the Sarbanes-Oxley Act

Chapter 5-3

1. An overview of corporate governance

2. Participants in the corporate governance process

3. The functions within the corporate governance process

4. The history of corporate governance

5. The Sarbanes–Oxley Act of 2002

6. The impact of the Sarbanes–Oxley Act on corporate governance

7. The importance of corporate governance in the study of accounting information systems

8. Ethics and corporate governance

Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Chapter 5-4 SO 1 An overview of corporate governance SO 1 An overview of corporate governance

An Overview of Corporate An Overview of Corporate GovernanceGovernanceAn Overview of Corporate An Overview of Corporate GovernanceGovernance

Accountants would characterize corporate governance as a system of checks and balances whereby a company’s leadership is held accountable for building:

shareholder value and

creating confidence in the financial reporting processes.

Tone at the top - set of values and behaviors in place for the corporate leaders.

Chapter 5-5

b. IRS audits.

Which of the following is not considered a component of corporate governance?

Concept CheckConcept Check

c. Internal audits.

d. External audits.

a. Board of directors oversight.

SO 1 An overview of corporate governance SO 1 An overview of corporate governance


Chapter 5-6

b. Shareholders and regulators.

Good corporate governance is achieved when the interests of which of the following groups are balanced?


c. Shareholders, the corporation, and the community.

d. Regulators and the community.

a. Internal auditors and external auditors.



Chapter 5-7

b. promoting an increase in hostile takeovers.

Corporate governance is primarily concerned with


c. promoting the legitimacy of corporate charters.

a. enhancing the trend toward more women serving on boards of directors..



d. emphasizing the relative roles, rights, and accountability of a company’s stakeholders.

Chapter 5-8 SO 1 An overview of corporate governance SO 1 An overview of corporate governance

Participants in Corporate Governance Participants in Corporate Governance ProcessProcessParticipants in Corporate Governance Participants in Corporate Governance ProcessProcess

Stakeholders are all of the different people who have some form of involvement or interest in the business.

Exhibit 5-1 Stakeholders as participants in the corporate governance process

SO 2 Participants SO 2 Participants in the corporate in the corporate governance governance processprocess

Chapter 5-9


Internal Stakeholders

Shareholders

Board of directors

Audit committee

Management

Employees

Internal auditors


Chapter 5-10


External Stakeholders

External auditors

Governing bodies

Communities

Investors

Creditors

Customers and suppliers


Chapter 5-11

b. SEC.

The governing body responsible for establishing the COSO framework for internal controls evaluations is the


c. PCAOB.

d. FASB.

a. Treadway Commission.


Chapter 5-12

Policies and procedures in place to lead the directorship of the company.

Features of effective leaders:

recruiting,

motivating,

evaluating,

problem solving, and

decision making.

Management OversightManagement Oversight

Functions Within Corporate Governance Functions Within Corporate Governance ProcessProcessFunctions Within Corporate Governance Functions Within Corporate Governance ProcessProcess

SO 3 The functions within the corporate governance SO 3 The functions within the corporate governance processprocess

Chapter 5-13

Accurate and transparent financial reporting requires a process approach. Six-step process for internal controls:

Define key activities and resources.

Define objectives of each activity.

Obtain input from experienced users and advisors on the effective design of controls.

Formally document the details of controls.

Test the effectiveness of controls.

Engage in continuous improvement.

Internal Controls and ComplianceInternal Controls and Compliance



Chapter 5-14

Discipline, respect, and accountability encourage good financial stewardship.

Earnings management - manipulating financial information.

early recognition of revenues

early shipment of products

falsification of customers

falsification of invoices or other records

allowing customers to take products without taking title to the products

Financial StewardshipFinancial Stewardship



Chapter 5-15

Integrity, fairness, and accountability are the underlying concepts in each of the roles of corporate governance.

Ethical ConductEthical Conduct



Chapter 5-16

b. compliant.

When financial information is presented properly and its correctness is verifiable, it is


c. accurate.

d. accountable.

a. transparent.



Chapter 5-17

Corporate governance first came to light in the 1930s with the creation of the Securities and Exchange Commission and in reaction to the accounting problems connected with the market crash of 1929 and the Great Depression.

Over the years, the concept has evolved as the business world has shifted focus from materiality to earnings pressures and, most recently, to the requirements of the Sarbanes–Oxley Act.

History of Corporate GovernanceHistory of Corporate GovernanceHistory of Corporate GovernanceHistory of Corporate Governance

SO 4 The history of corporate governanceSO 4 The history of corporate governance

Chapter 5-18

The Sarbanes–Oxley Act (“the Act”) applies to public companies and the auditors of public companies.

The Public Company Accounting Oversight Board (PCAOB) was established.

PCAOB comprises five members appointed by the SEC.

PCAOB governs the work of auditors of public companies

PCAOB has investigative and disciplinary authority over the performance of public accounting firms.

Sarbanes–Oxley Act of 2002Sarbanes–Oxley Act of 2002Sarbanes–Oxley Act of 2002Sarbanes–Oxley Act of 2002

SO 5 The Sarbanes-Oxley Act of 2002SO 5 The Sarbanes-Oxley Act of 2002

Chapter 5-19

Certain sections of the Act pertain to audit services.

201—Services outside scope of practice of auditors.

301—Public company audit committees.

302—Corporate responsibility for financial reports.

906—Failure of corporate officers to certify financial reports.

401—Disclosures in periodic reports.

404—Management assessment of internal controls.

406—Code of ethics for senior financial officers.



Chapter 5-20

Certain sections of the Act pertain to audit services.

409—Real-time disclosures.

802—Criminal penalties for altering documents.

1102—Tampering with a record or otherwise impeding an official proceeding.

806—Protection for employees of publicly traded companies who provide evidence of fraud.



Chapter 5-21

b. Programming assistance on the new division’s general ledger system.

Which of the following nonaudit services may be performed by auditors for a public-company audit client?


c. Human resources consulting regarding personnel for the new division.

a. IT consulting regarding the general ledger system for a newly acquired division.

d. Income tax return preparation for the new division.



Chapter 5-22

b. It specifies that whistleblowers must be terminated so as to avoid retaliation.

Section 806 of the Sarbanes–Oxley Act is often referred to as the whistleblower protection provision of the Act because


c. It protects whistleblowers’ jobs and prohibits retaliation.

a. It offers stock ownership to those who report instances of wrongdoing.


d. It provides criminal penalties for the alteration or destruction of documents.


Chapter 5-23

Management Oversight

More knowledgeable about accounting principles and financial systems.

Management certification of financial information.

Rigid penalties for noncompliance.

Impact of Sarbanes–Oxley ActImpact of Sarbanes–Oxley ActImpact of Sarbanes–Oxley ActImpact of Sarbanes–Oxley Act

SO 6 The impact of the Sarbanes–Oxley Act on corporate SO 6 The impact of the Sarbanes–Oxley Act on corporate governancegovernance

Chapter 5-24

Internal Controls and Compliance

Extra work for accountants, IT departments, and executives.

More paperwork is now prepared, retained, and filed with the SEC.

More timely information is required.

Section 404 requires companies to monitor their systems to find weaknesses in internal controls.



Chapter 5-25

Financial Stewardship

Act has caused many companies to take a deeper look at their policies and procedures that govern corporate conduct.



Ethical Conduct

codes of conduct

performance evaluation models

communications

Chapter 5-26

b. Management and employees.

In the corporate governance chain of command, the audit committee is accountable to


c. Governing bodies such as the SEC and PCAOB.

d. The external auditors.

a. The company’s vendors and other creditors.



Chapter 5-27

b. The corporate leader must be more in tune with IT to provide corporate governance solutions.

Which of the following is true regarding the post-Sarbanes–Oxley role of the corporate leader?


c. The corporate leader must be more focused on merger and acquisition targets.

a. More emphasis is placed on strategic planning and less emphasis on financial information.

d. The corporate leader tends to be less involved with the board of directors.



Chapter 5-28

The Sarbanes–Oxley Act heightens the business value of financial information. Since the Act requires more financial information and faster financial reporting, there is more attention than ever on the importance of the accountants and IT personnel who provide financial information for the company.

Corporate Governance in the Study Corporate Governance in the Study of AIS of AIS Corporate Governance in the Study Corporate Governance in the Study of AIS of AIS

SO 7 Importance of corporate governance in the study of AISSO 7 Importance of corporate governance in the study of AIS

Chapter 5-29

Internal stakeholders may sometimes have difficult ethical choices to make when their personal interests conflict with the interests of shareholders.

Corporate governance must provide the structure to make sure that a system of financial stewardship is maintained, even when times get tough.

Ethics and Corporate GovernanceEthics and Corporate GovernanceEthics and Corporate GovernanceEthics and Corporate Governance

SO 8 Ethics and corporate governanceSO 8 Ethics and corporate governance

Chapter 5-30

b. A small deceptive act that intensifies into criminal behavior

Many corporate frauds involve


c. An earnings management motive.

a. Managers soliciting assistance from their subordinates.

d. All of the above.

Ethics and Corporate GovernanceEthics and Corporate GovernanceEthics and Corporate GovernanceEthics and Corporate Governance

SO 8 Ethics and corporate governanceSO 8 Ethics and corporate governance

Chapter 5-31

Copyright © 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

CopyrightCopyrightCopyrightCopyright

Chapter 5-1. Chapter 5-2 Accounting Information Systems, 1 st Edition Corporate Governance and the Sarbanes- Oxley Act.

Documents

edition corporate governance

good corporate governance

corporate leaders

companys stakeholders

sarbanes oxley act slide

internal audits

concept check

external audits