Accounting Information Systems Research Paper Essay

Abstr goThe Sarbanes-Oxley manage of 2002 (SOX) was enacted into fairness in 2002 in the c solely down of stomach monetary inform s messdals involving vainglorious in humans held companies. SOX instituted newfangled strict monetary dominions with the blueprint of astir(p) account avowal practices and protecting investors from integrated misconduct. SOX requires integrated executives to vouch for the verity of pecuniary statements, and to institute and monitor impelling inbred catchs oer fiscal storying. The cost of run doneing an effectual ingrained laterality mental synthesis ar onerous, and SOX inflicts opportunity costs upon an opening move as executives have become more(prenominal) assay adverse due to fears of inculpation.The oert attach to explanation Oversight mesa (PCAOB) was created by SOX to administrate the account statement process and consecrate independence exigencys for attenders and analyseing committees. The PCAOB propos ed regulations must(prenominal) be sanctioned by the SEC before they atomic number 18 enacted. Since the passage of SOX, the IT de spokespersonment has become diminutive in designing and experienceing the internecine take ins in keep companionship news report selective instruction realizements. The tuition Technology Governance work (ITGI) created a mannikin called discover Objectives for study and link up Technology (COBIT) to grant guidance for companies to implement and monitor IT ecesis. report Information Systems look into PaperThe Sarbanes-Oxley Act of 2002 changed the landscape of corporate pecuniary inform and auditing. In the wake of corporate inform scandals, Congress unconquerable the write up profession was unable to self-regulate, and The Sarbanes-Oxley Act of 2002 was signed into police. The legal philosophy addresses corporate rapacity and dis fairishy by requiring companies to implement elongated inbred correspond procedures to deter wile and hold corporate executives accountable. The Public party Accounting Oversight Board is the enforcement build of the legislation, and is under the imprimatur of the SEC to oversee history and auditing processes. Public companies ar necessitateintegrate inbred have gots in their account development clays to en sure as shooting data harshness and security. The Sarbanes-Oxley Act of 2002In the aftermath of several(prenominal) corporate monetary reportage scandals involving large publically held companies such as Enron, WorldCom, and Tyco, the fall in States Congress passed the Sarbanes-Oxley Act of 2002 and enacted it into law on July 30, 2002. The Sarbanes-Oxley Act (SOX) takes its name from its two autochthonic congressional sponsors, Representative Michael Oxley (R-OH) and Senator Paul Sarbanes (D-MD) (Hoffman, 2005, p. 3). SOX instituted new strict fiscal regulations with the intent of improving report practices and protecting investors from corporate miscond uct. The law is intended to protect stakeholders from corporate greed, fraud, and come in monetary reporting. SOX legislation tackles several meaning(a) concerns including corporate responsibility, intimate molds, attendee independence, financial disclosures, criminal and fraud liability, conflicts of interest, and corporate revenue returns (Moffett and Grant, 2011, p. 3).Under the law, independent listeners and corporate officers of publicly traded companies must af mansion twain the accuracy of the financial statements and their supporting processes and data (Hoffman, 2005, p. 3). The law requires corporate officers to vouch for the durability of the follows intimate controls and to be honest and transp atomic number 18nt in financial reporting. SOX is create under eleven titles, with the studyity of the consent principles written under sections 302, 401, 404, and 409 (A Guide to the Sarbanes-Oxley Act, 2006). prick 302 requires companionship officers to certi fy the truthfulness and completeness of quarterly and annual reports. Additionally, the signing officers ar liable for establishing and maintaining the ingrained controls, and must have evaluated the say-so of the controls within 90 days front to certifying the financial statements (Hoffman, 2005, p. 4). office 401 of SOX requires corporations to issue financial statements that argon complete and accurate and admit all stuff off-balance sheet obligations or liabilities (A Guide to the Sarbanes-Oxley Act, 2006).This regulation was instituted to prevent public corporations from hiding liabilities from investors, and thus artificially inflating acquit prices. Section 404 requires public companies to establish essential controls and report annually on their effectiveness over financialreporting. The CFO and chief executive officer atomic number 18 held personally responsible for the indwelling controls via the requirement to sign a statement certifying the sufficiency of the intragroup control system (Moffett and Grant, 2011, p. 3). Additionally, the societys independent listener must issue an attestation regarding forethoughts assessment of the national structure as part of the comp whatsoevers annual report (Bloch, 2003, p. 68). Material changes to a companys financial specificise or operations must be disclosed to the public in a timely manner under the provision of Section 409. Rapid disclosure applies to all types of company info i.e. product recalls, power changes, or loss of a major customer (Hoffman, 2005, p. 4). congenital ControlsEffective internal controls protect a companys assets, maintain compliance, improve operations, prevent fraud, and set ahead accuracy in financial reporting. In 1992 the Committee of Sponsoring Organizations of the Treadway charge (COSO) designed an internal control manikin of five components the control environment, risk assessment, control activities, knowledge and communication, and supervise (Moffett et al, 2011, p. 3). Companies use this framework to implement internal control systems tailored to their own needs. No internal control system is infallible, however, effective controls provide mediocre assurance company assets argon protected and financial reporting is accurate.Section 404 compliance. Section 404 mandates that Securities and Exchange Commission (SEC) registered companies implement and maintain adequate internal control procedures for financial reporting, and besides appropriately assess and report on the internal controls effectiveness (Conway, 2003, p. 19). Company executives and audit committees atomic number 18 expected to take an active single-valued function in defining and evaluating the internal control structure and procedures. The COSO internal control framework is widely accepted as the best(p) criteria for evaluation of a companys internal control structure. financial backing of internal control procedures is essential to the evaluation process. Documentation provides attest that controls have been identified and can be monitored. All relevant financial statement assertions and each of the five COSO internal control components should be documented. Whendocumentation is abstracted or nonexistent, independent listeners willing report either a squ ar neediness or material weakness in internal control (Conway, 2003, p. 19).Furthermore, documentation provides cause that anxiety applies wisdom to protecting company assets and instills integrity in financial reporting in a way that is agreeable to the Lord, as affirmed in Proverbs 243, By wisdom a household is built, and through brain it is established (New world-wide Version). Internal controls should be evaluated to determine whether they argon operating effectively and to substantiate managements assertion on the adequacy of the controls. Internal control testing and results should be documented, with deficiencies tell and remediation plans identified (Con way, 2003, p. 19). Upon completion of the evaluation process, management prepares its assertion on the effectiveness of internal control over the financial reporting process. As part of the independent audit, the out-of-door auditor will test and evaluate the internal control system, and subsequently attest to managements assertion regarding internal controls.Section 404 blow on subaltern business. One of the biggest concerns to small firms is the onerous cost of implementing Section 404 on internal controls. Companies have seen audit fees affix by as much as 30% due to tougher write up and auditing standards essential by SOX (Solomon & Bryan-Low, 2004). In step-up to external auditing expenses, the cost of hiring employees to create, implement and monitor Section 404 compliant internal controls can be burdensome to small businesses.In addition to the financial burden created by SOX compliance, SOX clavers momentous opportunity cost on corporations by making executives mor e risk-adverse by lend in managers a fear of incrimination (Vakkur, McAfee, & Kipperman, 2010, p. 19). SOX inflicts extremely punitive measures on corporate executives to include penalties, incrimination, private litigation, and potential campaign market penalties (Ahmed, McAnally, Rasmussen & Weaver, 2010, p. 354). When managers time is consumed with regulatory compliance, they are not focused on new-product development or growing the business, resulting in glower profits and reduced marketplace competitiveness. The PCAOBThe Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act to oversee the chronicle process and dictate independence requirements for auditors and auditing committees (Kim, 2003, p. 236). In order to curb the system of accountants self-regulation, unless two of the five members of the PCAOB may be current or former testify public accountants. The PCAOB conducts annual quality inspections of invoice firms that audit more than one one hundred companies and triennial inspections of all other accounting firms (Kim, 2003, p. 241). The PCAOB has the authority to conduct special inspections of accounting firms at any time, and can impose sanctions on an accountant or accounting firm if the Board finds un fair(a) blow to supervise any person associated with auditing or quality control standards (Kim, 2003, p. 241). The SEC maintains authority over the PCAOB, and must approve PCAOB proposed regulations in order for them to become effective. PCAOB PronouncementsPronouncements tie in to accounting information systems. Auditing standardized No. 12, Identifying and Assessing try of Material Management, addresses the auditors requirement to understand the companys information system, including related business processes, relevant to financial reporting. This includes understanding transactions that are significant to the financial statements, and the procedures by which these transactions are initiated, authori zed, processed, unloaded, and reported. The auditor is to bewilder understanding of related accounting records, supporting information, and specific accounts that are used to initiate, authorize, process and record transactions. The auditor should understand how the information system captures events and conditions that are important to the financial statements and how information engineering affects the companys flow of transactions. Additionally, the auditor should become knowledgeable about the companys period end financial reporting process, including general ledger procedures, practical application of accounting principles, procedures used to process and record journal entries and adjustments, and procedures for preparing financial statements and related disclosures (Auditing warning No. 12, 2010).Pronouncements related to internal controls. Auditing standardised No. 5, An Audit of Internal Control over Financial Reporting thatis combine with an Audit of Financial Statem ents, establishes requirements and provides direction for audit engagements of managements assessment of the effectiveness of internal control over financial reporting that is part of a financial statement audit. Effective internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and related financial statements. The auditor is necessitate to plan and perform the audit to obtain appropriate evidence about whether material weaknesses exist in the internal control over financial reporting. General standards accommodate in the audit, including technical progress as an auditor, independence, due pro care, and professional skepticism.The auditor prepares and signs a report expressing whether the company hold effective internal control over financial reporting that is dated and issued in conjunction with the report on the audited financial statements (Auditing Standard No. 5, 2007). Auditing pronouncements. SOX authorized the PCAOB to establish auditing and professional practice standard to be employed by registered public accounting firms. Auditor compliance is mandatory. On an mean date basis, the PCAOB has select the generally accepted auditing standards as described in the American Institute of Certified Public Accountants Auditing Standards Boards Statement on Auditing Standards No. 95, in general Accepted Auditing Standards, in existence on April 16, 2003 (Auditing, 2003). Ethics and independence pronouncements. In accordance with overshadow 3520, the registered accounting firm and auditors must be independent of the firms audit client throughout the audit and the engagement period.In accordance with find oneself 3500T, the registered accounting firm and auditors shall comply with ethics standards as written in AIcertified public accountants Code of Professional Conduct Rule 102, and interpretations and rulings as in existence on April 16, 2003 (Ethics & Independence, 2003). Quality cont rol pronouncements. In April 2003 the PCAOB adopted as interim quality control standards the AIcertified public accountants Auditing Standards Boards Statements on Quality Control Standards, as in existence on April 16, 2003. The section requires that restricted public accounting firms shall have a system of quality control for its accounting and auditing practice that ensures services are only delivered and adequately supervised. Firm personnel are to comply with applicable professional standards and the firms standards of quality (Quality Control, 2003).Attestation pronouncements. In April 2003 the PCAOB adopted as interim attestation standards the AICPAs Auditing Standards Boards Statements on Standards for Attestation Engagements, related interpretations, and statements of position as in existence on April 16, 2003.The practician shall have adequate training and proficiency in the attest function and the humble matter. The practitioner shall maintain independence in mental at titude, and exercise due professional care in the engagement. Work shall be adequately planned and supervised, and sufficient evidence shall be obtained to support a reasonable basis for the conclusion expressed in the report (Attestation, 2003). Future PCAOB pronouncements. The PCAOB is considering including an Auditors Discussion and Analysis (AD&A) with an auditors report. The AD&A could include information related to the audit, including audit risks, audit procedures and results. It could also include discussion related to the auditors views of managements judgments and estimates, accounting policies and practices, and difficult issues. ( catamenia Activities, 2013). SOX and PCAOB Impact on Accounting Information SystemsThe SOX requires that companies evaluate the effectiveness of both the design and operation of internal controls (Holmes & Neubecker, 2006, p. 25). Because of the faith on accounting information systems for financial transactions and reporting, internal controls must be built into in the accounting system infrastructure in order to provide reasonable assurance that financial reporting is valid, complete, and free of fraud. Damianides (2005) stresses, IT will be pivotal to achieving this objective and establishing the foundation for a vowelize internal control environment. antecedent to SOX, thither were no definitive requirements on the cessation of accounting system information technology controls a company was expected to implement. Prior to SOX, invigorated managers and companies that placed high wideness on integrity had already instituted internal control procedures. The bible speaks to this concept of macrocosm good stewards of the property entrusted to us. As noted in Proverbs 2723, Be sure you know the condition of your flocks give special attention to your herds (New outside(a) Version).Once SOX became law, more attention was given to internal controls that should be inherent in accounting information systems. Accountingt ransactions from inception to electric pig are modifyd, resulting in a direct relationship between IT effectiveness and operable effectiveness in companies (Holmes et al., 2006, p. 25). The chief information officer plays a critical subroutine in SOX internal control compliance. IT professionals are tasked to provide accurate, visible, and timely information while ensuring the protection and security of information systems (Damianides, 2005, p. 77).IT governance is a process whereby a companys IT system sustains and supports company goals and objectives (Gelinas, Dull, & Wheeler, 2012, p. 264). The Information Technology Governance Institute (ITGI) created a framework called Control Objectives for Information and related Technology (COBIT) to provide guidance for companies to implement and monitor IT governance. The five key elements of the COBIT framework are strategic alignment, service actors line, resource management, risk management, and performance measurement (Kepczyk, 2012, p. 5).strategic alignment is the integration of the IT infrastructure into an enterprises strategic plans. Service delivery refers to the IT systems ability to securely provide information system access on any company-approved device from any location, on-site or remote. Resource management is the proactive supervise and control of IT hardware and software costs, proactively binding cost-benefit analysis. find management encompasses the identification of threats and vulnerabilities to IT infrastructure, with proactive actions taken to mitigate potential impacts. Lastly, performance management is process of determining the acceptable levels of network performance and monitoring adherence through such tools as balanced scorecards and benchmarks (Kepczyk, 2012, p. 5).Businesses that apply biblical wisdom to learning and understanding legal requirements and how to implement them will be booming in overcoming the tactical challenges of complying with the law. We are reminding in Proverbs 15, let the wise listen and add to their learning, and let the cunning get guidance. ConclusionThe Sarbanes-Oxley Act of 2002 is the near significant legislation concerning market regulation since the Exchange Acts of 1933 and 1934 (Holmes et al., 2006, p. 27). Public corporations are some impacted by the stringent internal control requirements. The PCAOB oversees accounting processes and auditing requirements. Companies that are successful in establishing and maintaining effective internal controls automate them within their accounting information systems. As the automation in business processes is continually growing, managers are challenged to ensure transactions are valid, security is strong, and reports are accurate and valid.ReferencesA Guide to the Sarbanes-Oxley Act. (2006). Addison-Hewitt Associates. Retrieved April 30, 2014, from http//soxlaw.com Ahmed, A., McAnally, M., Rasmussen, S. & Weaver, C. (2010). How costly is the sarbanes oxley act? designate on the effects of the act on corporate profitability. Journal of Corporate Finance, 16, 352-369. Attestation. (2003). Retrieved April 30, 2014, from www.pcaobus.org Auditing. (2003). Retrieved April 30, 2014, from www.pcaobus.org Auditing Standard No. 5. (2007). Retrieved April 30, 2014, from www.pcaobus.org Auditing Standard No. 12. (2010). Retrieved April 30, 2014, from www.pcaobus.org Bloch, G. (2003). Sarbanes-oxleys effects on internal controls for revenue. The CPA Journal, 73(4), 68-70. Retrieved from http//search.proquest.com/docview/212294542?accountid=12085 Conway, R. 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