Running head: WEEKLY REFLECTION

Weekly Reflection Edward Calleros, Allen Flores, Lisa Sanchez, Brandon Ballou ACC/290 12/16/2013 John Garcia

WEEKLY REFLECTION

Weekly Reflection

The team members knowledge continues to grow. Week five mainly covered the effect of, the Sa Sarbanes-Oxley Act of 2002 on internal controls. The Sarbanes-Oxley Act of 2002 was put into place because of shady

accounting practices. One of the biggest accounting scandals was the Enron scandal in 2001. Enron was one of the largest producers of natural gas and electricity. To the outside world, it was the company to invest in. It mostly started in November 1997. Enron bought out a partners share in a company called JEDI (Time Specials, 2011). They sell it to a firm they created called Chew co. that an Enron manager would run (Time Specials, 2011). This is how Enron begins to hide their debt. In November 2001, Enron admits to accounting errors that inflated income by $586 million since 1997, and on December 2, 2001, Enron filed for bankruptcy (Time Specials, 2011).The Securities and Exchange Commission discovered accounting scandals and lies from Enron and its accounting firm Arthur Anderson, which causes investors to lose billions (Ponzio, 2007). Therefore, the Sarbanes-Oxley Act of 2002 demand that managers of the publicly traded companies set up and preserve structures of internal control on the business financial processes. The act also demands that top management of the companies provide certifications in regard to the accuracy of their financial statements. This system has changed greatly the practice of accounting because it not only regulates the financial records of the businesses, but also it proposes penalties for their abuse. The act describes the kind of records companies should record and their length. It also makes sure every financial data is correct because one function

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of the act is to prevent and detect falsification of data made by organizations. Therefore, because of the Sarbanes-Oxley Act of 2002 the responsibility of employees has increased in providing accurate financial report, which in turn minimizes the occurrence of financial errors. Basically, there are five primary components of internal controls. Control Environment is top management clarifying the organization will not tolerate unethical activity and that it values integrity. Risk Assessment is the company identifying and analyzing factors that create risks for the business and how to manage these risks. Control Activities are to curtail occurrences of fraud. Information and Communication capturing and communicating pertinent information from the top of the organization down and vice versa along with communicating to necessary external parties. Monitoring periodically monitor the internal control system to ensure adequacy and report deficiencies to necessary management. In summary, the role of internal controls to comply with the Sarbanes-Oxley Act (2002) is to safeguard the assets of a company, enhance reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

References:

Time Specials. (2011). Behind the Enron Scandal. Retrieved from http://www.time.comJoe Ponzio. (2007, August 29). Enron: Accounting Scandal or Bad Business. Retrieved from http://www.fwallstreet.com

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