Describing of the Sarbanes-Oxley Act

1. In two to three paragraphs, describe the Sarbanes-Oxley Act and why it is important to the accounting profession. (15 points) Sarbanes-Oxley Act was created in order to ensure that controls were implemented and monitored by the regulating authority. Congress wanted to make sure that there was a specific standard and guideline for companies to follow in order to prevent fraud at such a large scale. When followed correctly there are controls set in place that are internal which are governed by the managers and checked upon by the Federal regulatory authorities.This act was passed in 2002, prior to then the rules were more relaxed and when the crisis occurred with Enron that was a breaking point for the American people, especially those who lost a lot of money. Needless to say this just made it harder for fraud to occur. There were and still are several grey areas that the players involved exploit.2. Name and briefly describe the five components of COSO’s internal control fram ework. (10 points) The five components of COSO are as follows: a. Control Environment: Basically means that the leaders of the organization set the tone for ethics and enforce them with a code of conduct followed by consequences when not abided by. b. Risk assessment: this just means they check there controls for weaknesses regularly and fix any discrepancies with stronger controls. c. Control activities: These are segregation of duties, account reconciliations, and info processing controls. They are considered internal controls as well that protect the processes in place. d. Information and communication: The internal and external reporting process. The text book stated that it includes technology assessments as well.3. Describe the relationship between the Sarbanes-Oxley Act and COSO. (10 points) COSO is used to check in on the organizations and offer guidelines for them to follow when setting upo their controls. If all five elements are followed then they will not have much to wo rry about when auditing occurs and fraud would be less likely.4. Tom Jackson is a CPA who really likes to go to Las Vegas, play poker, and bet on football games. Tom knows that the accounting profession disapproves of gambling, but because he spends a lot of time studying sports facts and how to win at poker, he feels that he is simply making educated decisions based on facts. He says that this is no different from using accounting information to buy stocks. Use the fraud triangle as a basis to comment on Tom’s gambling activities. (15 points) In this case Tom has all of the elements in place to commit fraud. He has the opportunity because of the nature of his business.He has already decided that gambling excessively is ok because it is a calculated risk. Not realizing he is putting himself in a position where the pressure will come into place when he does lose. Debt is always looked at when being evaluated for sensitive positions that deal with national security or money inv olvement. Even if it is just a public trust clearance that the person is seeking on order to get the position they still will review your credit history at a minimum.