Sarbanes-Oxley Simplified

Transcription

1 Sarbanes-Oxley Simplified 2nd edition Michel Morley, CPA Nixon-Carre Ltd., Toronto, ON

2 Contents Introduction pg xi Chapter 1 - The Birth of the Act...<..._._ pg 1 A Simple Solution to a Complex Problem Enron: The Destruction of Investor Confidence Special Purpose Entities Off-Balance-Sheet Items Revenue Recognition Investors Betrayed Lack of Public Confidence Ignorance Is No Longer An Excuse A Simple Solution Three Questions Not Just For Publicly Traded Companies Document Structure Chapter 2 - The PCAOB pg 11 Watchdog for the SEC The Public Company Accounting Oversight Board Audit Records Quality Control and Independence Auditing and Consulting Inspections Investigations Sanctions Foreign Public Accounting Firms Dealing With Improper Conduct Penny Stock Chapter 3 - Corporate Responsibilities pg 23 The Client's Audit Committee Complaint Procedures Certifications by the CEO and the CFO Disclosure of Deficiencies Disclosure of Fraud Changes in Internal Controls Improper Influence on Conduct of Audits Forfeiture of Bonuses and Profits Blackout Periods for Directors and Executive Officers Enhanced Financial Disclosures Off-Balance Sheet Transactions Pro-forma Financial Information Executive Loans Disclosure of Transactions Involving Management Management Assessment of Internal Controls Code of Ethics Audit Committee Financial Expert Corporate Tax Returns

3 Chapter 4 - The Events That Preceded Enron pg 39 GAO Study of Public Accounting Firms Audit Market is an Oligopoly SEC Study of Credit Rating Agencies NRSRO's Monitoring by Credit Rating Agencies SEC Study of Violations by Securities Professionals SEC Study of Violations of Reporting Requirements GAO Study of Investment Banks Investment Banks and Research Analysts Chapter 5 - Enhancing Investor Confidence... pg 53 Corporate and Criminal Fraud Accountability Destruction of Corporate Audit Records Statute of Limitations for Securities Fraud The Whistleblower Clause White-collar Crime Penalty Enhancements Criminal Penalties for Mail and Wire Fraud Failure of Corporate Officers to Certify - Financial Reports Tampering with a Record or Impeding an Official Proceeding Temporary Freeze Authority Persons Barred from Servicing as Officers or Directors Chapter 6 - Conflict of Interest pg 61 Auditor Independence Services Outside the Scope of Practice of Auditors Audit Partner Rotation Non- Registered Public Accounting Firms Analyst Conflicts of Interest No Special Access for Investment Bankers Rules Against Retaliation for an Unfavorable Report Time Limitations (Quiet Periods) Conflicts of Interest by Securities Analysts Rules for Public Appearances and Research Reports Chapter 7 - The Compliance Process pg 69 Financial Controls: The Backbone of Risk Management Starting At the Top A Simple Model The Company Process Department or Function Steps Mapping the Process Assessment of the Risk of Misstatement Using Qualitative and Quantitative Methods Establishing a Risk Management Plan Financial Controls Monitoring and Feedback Maintaining Compliance COSO VI

4 Chapter 8 - Information Technology pg 87 Documentation for Compliance IT Crosses All Boundaries Controls for Sensitive Information Electronic Approvals Controls for Hardware and Software Spreadsheets Laptop Computers Network Administration Backup Audit Trails Safeguarding Personal Information Chapter 9 - Inventory pg 97 Risk of Manipulation Determining Accountability for Inventory Obsolescence Valuation Inventory Sent to Outside Processors A Sale That Is Not a Sale Inventory Leaving the Premises Inventory Counts Chapter 10 - Accounts Receivable pg 105 The Sales Contract Collecting Before You Sell Terms Sales Returns Interest The Collections Process Time- Sensitive Documents Setting Credit Limits Credit Scoring Outsourcing Collection Agencies Monitoring Customer Creditworthiness Controls for the Acceptance of Collateral Bad Debt Allowance Write-offs Deductions Risk Imported from Other Departments or Functions Collusion Chapter 11 - Accounts Payable pg 121 Inventory Purchasing/Supplier Payments False Invoices Payroll Taxes Miscellaneous Payments Approval Limits Types of Approvals Repetitive Processes Inter-company Payments Department Managers Holding Invoices Accruals Chapter 12 - Assets pg 129 Asset Policies Valuation Approvals for Purchasing When the Purchase Price is Out of Line Assets for Employees Working Out of the Office Intellectual Property Depreciation Leasehold Improvements Leases Goodwill Mergers and Acquisitions Tax Credits Equipment Prepaid Expenses Recurring Entries Customer Deposits Asset Securitization Marketable Securities vu

5 Chapter 13 - Bill 198 in Canada pg 139 Bill 198 and Sarbanes-Oxley Material Changes Must Be Reported Immediately Penalties Fraud and Market Manipulation Investors Can Sue Directors and Officers Time Limits Disclosures Pro-forma Information Audit Committees Internal Controls Similar Key Provisions Similar Compliance Procedures Chapter 14 - Internal Reporting. i. pg 147 Is it accurate? Are you sure? Can you prove it? Internal Reports: Decision Tools Additional Focus on Off-Balance- Sheet Transactions Foreign Company Internal Reporting Sarbanes-Oxley Compliance Software Dangers of Selfassessment Documentation Internal Controls to Manage Risk Who Approves Reporting? Internal Reporting Becomes External Reporting Role of the Auditor - Year End and Ongoing Process Chapter 15 - Living With Sarbanes-Oxley pg 155 The Reality of Sarbanes-Oxley Index pg 159 Vlll