Action Research Proposal Form Final Version of Action Research Proposal SOX Implementation 1. Setting Description: Name of organization and location where action research will take place: Inkplus LLC, Coral Gables FL Key Personnel: The compliance team in the operations department. 2. Statement of problem: Failure to have a proper checks and balance system can result in financial fallout (such as Enron). 3. Purpose of the Study: The purpose of this study is to assess the risk of internal controls versus federally mandated controls such as the Sarbanes Oxley methodology. 4. Subjects: The Operations Department
Compliance team members: Ana Perez, John Oliva, Betsy Johnson, Hector Prieto 5. Research Question: Should Inkplus consider adopting the Sarbanes Oxley methodology vs. its own set of internal controls? 6. Type of research this question lends itself to: Descriptive 7. The study will concern itself with group differences or relationships among variables? Independent Variable: Methods: 1 = Self-imposed controls, 2 = Government mandated controls Dependent variable: Audit Results (Interval level) 8. Variables used including scale of measurement: Prior year audit vs. Current year audit 9. Research Hypothesis:
Implementing SOX methodology and having these types of controls and processes will strengthen our corporate accounting controls and prepare us to go public. 10. Definitions of Terms: SOX – is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U. S. public company boards, management and public accounting firms. It is named after sponsors U. S. Senator Paul Sarbanes (D-MD) and U. S. Representative Michael G. Oxley (R-OH). Implementation – Implementation is the carrying out, execution, or practice of a plan, a method, or any design for doing something.
Internal Controls – is defined as a process affected by an organization’s structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. Audit – is an evaluation of a person, organization, system, process, enterprise, project or product. REVIEW OF THE LITERATURE 11. Review: Sarbanes Oxley is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U. S. public company boards, management and public accounting firms. It is named after sponsors U. S. Senator Paul Sarbanes (D-MD) and U. S.
Representative Michael G. Oxley (R-OH). Most studies and literature on Sarbanes Oxley point to the benefits of its implementation. New York Times reports that President Bush signs bill aimed at fraud in corporations on July 30, 2002. Mr. Bush casts himself as the protector of the small investor and the rank and file worker (Bumiller, 2002). Gilbert –Welytok mentions that the CEO and CFO are now required to take full ownership of financial statements under section 302 (Gilbert –Welytok, 2008). Sanjay notes that corporations have improved their internal controls and that financial statements are perceived to be more reliable (Sanjay, 2006).
Kuschnik observed that financial restatements increased significantly in the wake of the SOX legislation and have since dramatically declined, as companies “cleaned up” their books (Kuschnik, 2008). Lander indicates that borrowing costs are lower for companies that improved their internal controls, by between 50 and 150 basis points (Lander, 2006). Korn/Ferry research indicated that SOX 404 indeed led to conservative reported earnings, but also reduced stock valuations of small firms (Korn/Ferry, 2004). While some research cites the added costs, it has been noted that compliance costs are lower than expected after the first year.
Sarbanes Oxley has been commended by financial industry experts, noting improved investor confidence and more accurate and reliable financial statements. The FEI Survey of 2007 demonstrated that although compliance costs were high, more companies see the benefit and note positive changes to their audits (FEI, 2007). The Economist published a study that focused on changes in the total costs of being a U. S. public company, which were significantly affected by SOX. Such costs include external auditor fees, directors and officers insurance, board compensation, lost productivity, and legal costs.
Each of these cost categories increased significantly between FY2001-FY2006 (Ferrel, 2005). Sarbanes Oxley has been credited with the uncovering of the November 2009, $24 million fraud committed by Value Line. Other countries such as Australia, Canada and Germany have laws similar to that of Sarbanes Oxley. The New York Times reported $24 million fraud committed by Value Line. No criminal charges have been filed. Restitution totaling $34 million will be placed in fair fund and returned to investors (Norris, 2010) 12. Proposal Summary:
Sarbanes Oxley is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U. S. public company boards, management and public accounting firms. It is named after sponsors U. S. Senator Paul Sarbanes (D-MD) and U. S. Representative Michael G. Oxley (R-OH). We are conscious of the changing needs of the business. One way to put us ahead of the game is to implement SOX controls here at Inkplus. We will only benefit from these processes as our financial reports and records will be a true representation of our business.
Another advantage of implementing SOX at this time will be 100% compliance to federal law. If our board members feel the need to sell and go public we would be compliant as of day one. Program objectives include disclosure controls, disclosure in periodic reports (off-balance sheet items), assessment of internal controls, criminal penalties for violation of SOX, and criminal penalties for retaliation against whistle blowers. We believe that this project will introduce our staff to enhanced controls. It will eliminate conflicts of interest with external auditors.
Our senior executives will take individual responsibility for the accuracy and completeness of corporate financial reports. Finally, accountability will be everyone’s responsibility. The total cost of implementation of the SOX Project is $190,000. Of this amount, $140,000 has already been committed from last year’s budget. Your investment of $50,000 will complete the funding we need to fully implement this project, and I am excited about the prospect of its implementation. Thank you for your consideration of my request PROCEDURES 13. Design of the Study: Descriptive 14.
Instrumentation: Dependent Measure(s) Audit Results 15. Statistical Procedures: The effectiveness of SOX implementation will be determined by internal compliance audits. Based on these results, we will know which methodology is more effective. 16. References Bumiller, Elisabeth (2002). Bush Signs Bill Aimed at Fraud in Corporations. The New York Times. FEI Survey (2007) Ferrel, Greg (2007). Five years of Sarbanes–Oxley. The Economist. 2007-07-26. Retrieved from http://economist. com/displaystory. cfmstory_id=9545905 Gilbert -Welytok, Jill (2008). SOX in sixty seconds.
Sarbanes-Oxley for Dummies, (2) 27-32. Korn/Ferry (2004) Kuschnik, Bernhard; The Sarbanes Oxley Act: Big Brother is watching you Rutgers Business Law Journal, Volume 5 Retrieved from http://businesslaw. newark. rutgers. edu/RBLJ_vol5. pdf Lander, Guy (2006) What is Sarbanes-Oxley? Lord ; Benoit Annual Report (2006) Norris, Floyd (2010). “Supreme Court Upholds Accounting Board”. The New York Times. 2010-06-29. Retrieved from http://www. nytimes. com/2010/06/29/business Sanjay, Anand (2006) Sarbanes-Oxley Guide for Finance and Information Technology Professionals