CHAPTER 7: ACCOUNTING, RECORDS, AND ASSOCIATED REGULATIONS
The executives also are required to certify that they have reported whether there were significant changes in internal controls or in other factors that could change internal controls subsequent to their evaluation of the internal controls. Of major importance to AR managers is the provision that requires that the top certifying corporate officers must report to the auditor and audit committee all fraud “whether or not” that involves management or employees who play a significant role in internal controls. In years past, many companies dismissed employees suspected of fraud but failed to prosecute. The reasoning was that publicizing fraud merely encouraged others to perpetrate future fraud, and was an embarrassment to the company. Today, thanks to the Sarbanes- Oxley Act, any and all involved with internal controls need to be particularly careful that they follow ethical and legal procedures in everything they do. Even the smallest action that constitutes fraud must be disclosed to the audit committee and auditors. Information on Internal Controls Moves to the Annual Report The health and condition of internal controls must be featured in the company’s annual report. At many companies in years past, these yearly reports to shareholders were critiqued by the financial media as much for their glossy appearance as for their content. The Sarbanes-Oxley Act mandates that annual reports now carry “an assessment … of the effectiveness of the internal controls structure and procedures … for financial reporting.” Penalties Are Severe The law provides that anyone who “knowingly” defrauds shareholders “may be subject to fines and imprisonment up to 25 years.” It also imposes criminal penalties for anyone who destroys, alters, or falsifies any documents in a federal investigation or a bankruptcy proceeding. Accountants Get a New Oversight Group The Act also provides a new oversight group—the Public Company Accounting Oversight Board (PCAOB) The board oversees and investigates the audits and auditors of public companies, and has the authority to sanction both firms and individuals for violations of SOX and other securities laws and regulations. The five members of the board are appointed by the Securities and Exchange Commission (SEC). Two of the five board members are or must have been CPAs. The remaining three must not be and cannot have been CPAs. The Board has the power to regularly inspect registered accounting firms’ operations. It also can investigate potential violations of securities laws, standards, competency, and conduct. The investigations that the board conducts can be referred to the SEC. If the SEC approves, the investigations also may be referred to the U.S. Department of Justice, state attorneys general, or state boards of accountancy. The PCAOB may impose sanctions for non-cooperation, violations, or failure to supervise a partner or employee in a registered accounting firm. The civil sanctions can be substantial. Sanctions on firms can run into the millions of dollars, and are particularly steep for “intentional, knowing, or reckless” violations. Sanctions on individuals are limited to $750,000 and $1 million, respectively.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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