Appendix I – The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
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APPENDIX I
THE SARBANES-OXLEY ACT, INTERNAL CONTROLS, AND
MANAGEMENT ACCOUNTING
Learning Objectives
2. Understand and discuss the role of the PCAOB and the implications of Sarbanes-
Oxley Sections 302 and 404.
Appendix I – The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
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Appendix Overview
I. Sarbanes-Oxley (SOX) Act
II. Internal Controls Over Financial Reporting
Appendix I – The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
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Key Lecture Concepts
I. Sarbanes-Oxley (SOX) Act
• SOX was enacted in 2002 as a result of several major corporate accounting
scandals. The act:
➢ Sought reform in companies’ financial reporting practices.
II. Internal Controls Over Financial Reporting
• Internal control is “broadly defined as a process, established by an entity’s
board of directors, management, and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives in the
following categories:
➢ Effectiveness and efficiency of operations.
• Examples of internal controls include:
➢ Separation of duties
Appendix I – The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
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III. Public Company Accounting Oversight Board
IV. SOX Sections 302 and 404
• SOX 302: Under this section, signing officers of a company’s financial
reports must establish, maintain, and evaluate the firm’s internal controls.
V. Implications of SOX Sections 302 and 404
• SOX 302 and 404 have created troublesome and costly reporting and
Appendix I – The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
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Teaching Overview
Coverage of this material will probably be somewhat brief, as it is a bit “heavy” for
introductory students. I tend to focus on the concept of internal control and establish
Links to the Text
Homework Grid
Item No.
Learning
Objectives
Completion
Time (min.)
Special
Features*
Exercises:
I-7
1
15
I-8
1
15 to 30
G
I-9
2
30
W, C
I-10
2
30 to 45
G
I-11
2
15
I-12
1, 2
15
I-13
1, 2
20