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The Sarbanes-Oxley Act of 2002: Internal Controls, Internal

and External
Auditors
HOMEGROWN developers
recently
launched the first-of-aIT
Governance
Forensic
Accounting
kind accounting software in the Philippines that is set to

revolutionize
the opened
accounting
practice in the
country.
Many
doors
have
for a professional
CPA
who iswith
proficient
A
run
in
of
corporate
fraud
in
the
early
2000s
such of
Since the Stock Market Crash of 1929 there has not been
a piece
in these systems.
Becausepartner
information
technology takes
on a
Jonathan
Tito,
managing
of Vantagepoint
Business
companies
as
Enron,
World
and
Tyco
deeply
legislation
written
that
changed
the Com
culture
and the
operations
of
major part
of running
a successful
organization
the IT department
System
Solutions
Co.,
said
Easy
Journal
Accounting
System
publicly
held companies
until October
of 2002
when Congress
influenced
public awareness.
New
regulations
were
needs
to be
managed. This
manager
needs
to oversee
that the
is
the
first
accounting
software
in
the
Philippines
capable
to
passed
the Sarbanes-Oxley
Act
also known
asbeing
SOX. The
law was
developed.
Corporate
fraud
was
seriously
information
technologies
support
the
strategies
and
address
the
accountants'
peeve
oforganizations
making manually
the
BIR
passed
in
an
effort
to
stop
corporate
accounting
fraud
and
consider
investigated.
These scandals
actually
opened
objectives.
The organizations
IT systems
must be
ahead ofnew
the
statutory
reports.
the shareholders best interest first (McNamara, 2006).
competition,
must be financially
to the
opportunitiesthey
for accountants
in such responsible
areas as forensic
The
software
was
officially
launched
last
April
2013,
organization,
they
mustpublicly
be secure
with
a backup
plan for
failure
accounting.
A CPAs
expert
knowledge
of accounting
and to
Since
the
enactment,
held
companies
were
required
although
it
underwent
over
three
years
of
beta-testing
and
they combined
must be in
compliance
with effective
controls.
finance;
with
investigational
techniques
and
uphold
strict
internal controls.
The CEO
and
thelocal
CFO were
now
before
Vantagepoint
introduced
it
in
the
market,
Not only must the IT systems support the organizational objectives
law made
it aonperfect
union financial
for examining
criminal
personally
responsible
for reporting
information.
Instantly
focusing
more
empowering
the
small
and
medium
but the organization
must be in compliance
with
government
there
was a transactions.
demand to ensure
accuracy
in business systems.
They
financial
Forensic
accountants
help with
enterprises
regulations (SMEs).
within the IT Infrastructure. The IT Governance
were
required whether
to have activities
internal controls
for in
operating
practices,
interpreting
are
illegal
such
areas
concept
is promoted
by professional
organizations
suchavailed
as, theas;
IT
"Objective
is
to
develop
a
software
that
can
be
by
policies
and
procedures
written
and
communicated.
In
order
to
financialcompanies.
statement
fraud,
money
laundering,
Governance
Institute
(ITGI)
which
was established
in
1998
and
smaller
Before,
bigger
companies
can
only
accomplish this task, management accountants and internal
first
published
the bankruptcies,
ITsystems
Governance
framework
in that
year.
In 2004,
embezzlement,
contract
disputes,
insurance
afford
accounting
because
they're
worth
hundreds
auditors
would
be
needed.
This
created
new
challenges
for CPAs
the
ITGI published
IT Control
for Sarbanes-Oxley
claims,
and
securities
fraud.
They work
with lawyers,which
law
of
pesos,
if not
millions,"
heObjectives
said.
(McNamara,
2006;
Accountant
and
Auditors,
n.d.).
helped
to mainstream
awareness
of also
IT Governance
and establish
enforcement
personnel
and can
be
an expert
witness
For
them,
it
was
their
topmost
priority
to
develop
a superior
controls. This guidance was obtained from Control Objectives
for
during
a trial was
(Accountants
Auditors,
n.d;controls.
Kruglinski,
An
importance
placed on and
audits
of financial
CPAs
Information and Related Technology (CoBIT). This was also
began
2009).assisting the executive officers to ensure the financial
published by the ITGI. Other IT Governance frameworks are the IT
reports where ready to be audited. The Act prohibits accountants
Infrastructure Library and ISO 17799 (Information Technology
The managing
added useand
of consulting
information
technology
from
clients
whose has
booksincreased
they were
-Security Techniques- Code of Practice for Information Security
auditing.
As a result,
the company
two separate
the existence
of computer
crimes had
suchtoas;hire
identity
theft,
Management)
(Schroeder,
2006).
accounting
firms. Thecomputer
internal auditor
was hired
to make
certain
e-mail phishing,
hacking,
software
piracy,
the
company must
was
in incompliance
with
corporate
and
IT
managers
be
direct computer
alliance
with
executive policies
managers
purposefully
spreading
viruses,
stealing
government
regulations.
internal sales
auditors
could
actually
from
all departments
of These
the
organization.
Together
they
must
computer
files
and data,
e-commerce
scams
and
the
orchestrate
successful
business
design
internal
controls
and planning,
evaluate and
thecompliance-related
effectiveness and
list goes on and on. The job market is open to CPAs who
management
decisions
in reference
to IT systems.
and the business
model.
efficiency
of the
companys
computer
By documenting
meet
the
AICPAs
qualifications
to
become
Certified
in
He/she
mustinternal
be a successful,
professional
with
strong
IT
and
testing
controls influential
on real-time
data they
could
ensure
Financial
Forensics
(CFF)
for
a
career
in
fraud
prevention.
leadership
skillsreliability
and superior
managerial
abilities
(Schroeder,
the
companys
of financial
reporting
(Accountant
and
Also
the
Association
of
Certified
Fraud
Examiners
offers
2006). An.d.;
CPAKruglinski,
who is a 2009).
member of the American Institute of
Auditors,
Certified
become a Forensic
Certified
Certified Public
FraudAccountants
Examiner (AICPA)
(CFE) can
credentials.
Information
Professional
(CITP).
The credential
accountingTechnology
services are
very much
needed
and in takes
high
into
account
his/her combined
demand
(Kruglinski,
2009). expertise and makes him/her an IT
professional, the most trusted business advisor (CPA CITP, 2009).

Lehman brothers
Lehman brothers is a Xerox
Global financial services firm
Bernie
Madoff
Scandal
which Hid over $50
billion
in loans
disguised as sales.
Supply
Chain
Management
(SCM)
Systemsfor
Lehman
executives
and
the Xerox
company's
Ernstits
&
American-based
company
is auditors,
known
Bernard
L.
Madoff
Investment
Securities
LLC
was
a
Wall
Young.Allegedly
sold toxic
assets
to were
Cayman
Island
document
management
solutions
which
founded
in
Street
investment
firm
founded
by
Madoff.
He
tricked
Another
strategic
software
application
is
the
Supply
chain
banks
with
the
understanding
that
they
would
be
1906.
It was out
discovered
inbillion
2002
that
there
were
incorrect
investors
ofeventually.
$64.8
through
the
largest
Ponzi
management
(SCM)
system.
This
helps
businesses
manage
bought
back
Created
the
impression
entries
in the
balance
sheetsMadoff,
of the his
company
from
1997
scheme
inwith
history.
Bernie
accountant,
David
relationships
their
suppliers.
to
thebillion
authors
of
Lehman
had
$50
billion
more According
cash and
$50
less
and
Frank
DiPascalli
paid
their
investors
to
2000.
U.S.
Security
and
Commission
the
textbook,
Management
Information
Systems,
Kenneth
and
inFriehling,
toxic The
assets
than
it really
did. Exchange
They
were
forced
into
returns
out
their
own
(investors)
or that
of
brought
Xeroxs
malpractice
into chain
themoney
limelight.
The
Jane
Laudon
theof
definition
ofin
Supply
management
is,
the
largest
bankruptcy
U.S.
history.
SEC
didn't
other investors
rather
than
fromand
profits.
Madoff
toldpay
his
Information
systems
thataccounts
automate
the was
flow
of information
corporation
rectified
its
forced
to
prosecute
due to
lack
of
evidence.
In
2007,
Lehman
sons about
his
scheme
and
they
reported
him
to the
between
a was
firm
and
its
suppliers
infraud.
order
to optimize
the
Brothers
ranked
the
#1 "Most
Admired
Securities
$10
million
as
penalty
for
securities
SEC.
He
was
arrested
the
next
day.
They
are
planning,
and delivery of products and
Firm" bysourcing,
Fortunemanufacturing
Magazine.
penalized150
years
prison
forinterorganization
Madoff + $170system
billion
services
(2006, p.G
12.)inThis
is an
restitution. Prison time for Friehling and DiPascalli.
because the flow of information crosses over organizational
Madoff's fraud was revealed just months after the 2008
boundaries (Laudon, et al, 2006, p.56-57). Dr. Roger D.
U.S. financial collapse.
Qwest Communications

Blackwell, professor of marketing at Ohio State University and


author of the best-selling book, "From Mind to Market," says it
Qwest Communications is a telecommunications company
very briefly, "Supply chain management is all about having the
providing
services
to 14
states
in the
The
right
product
in the right
place,
at the
rightUS.
price,
at company
the right
still
exists.
In
2002,
it
was
found
out
that
the
company
time and in the right condition" (PC Magazine, n.d.). Supply
engaged
in fraudulent
accounting
practicesarea
resulting
to
chain
management
has become
an important
in many
the inflation of its revenues generated from its deals with
organizations.

Enron.

RCBC BANKARD

There are quite a few demands of a SCM such as; planning and
managing
procurement,
sourcing,from
and Equitable
product logistics.
These
RCBC Capital
bought Bankard
PCI for P1.80
systems
require
expertise
run misled
them. The
billion. Later
onfinancial
it claimed
it had to
been
intofinancial
buying
and control aspects of the SCM organization needs to be
Bankard and sought an arbitration claim with the
monitored and supported by a staff. The CPA needs to monitor
International Chamber of Commerce. In its complaint,
the entire supple chain, beyond the corporation itself
RCBC Capital
sought
rescission
the insale
alleged
(Kruglinski,
2009).
John A.
Kruglinskiof
wrote
the for
Pennsylvania
deficiencies
in Bankards
accounting
practices
nonCPA
Journal, Supply
chain finance
positions
typicallyand
require
a
disclosure
of material
in relation
to the acquisition.
strong
background
in facts
inventory
management
and cost
It also suedalong
SGV with
& Co.
as Bankards
auditor.
accounting,
other
skills, suchexternal
as contract
and capital
expenditure evaluation (2009). In order to meet the demands
of the Supply chain management system a CPA, with a standard
of excellence in financial knowledge and competencies; superior
managerial abilities, is needed to oversee the operations and