Lecture I: Introduction
What is management accounting and control?
• Steering an organization in such a way that the goals ave realised
Real definition: Management control is a “Systematic process by which the
organization's higher level managers influence the lower level managers (or
employees) to implement the organization's strategy”.
Goal → effective execution of strategy and higher performance in long-term.
Back in the days it was all about profit maximalization and "the few watch
the many” (panopticon). Nowadays it is the many watching the few
(synopticon).
An international setting entails:
• more stakeholders with diverging or even conflicting interests.
• different institutions.
• different balance of power, so different priorities.
• different notions of what is legitimate OR right, just, fair, or valuable
,Article I: The Sarbanes-Oxley Act of 2002: An Analysis of and Comments on the
Accounting-Related Provisions
Sarbanes_oxley act →Signed into law at 30 july 2002, in response to the wide
spread and financially devastating business scandals (Enron, WorldCom, etc.)the
act seeks to:
• restore public confidence in both public accounting and public traded
securities;
• assure ethical business practises through heightened levels of executive
awareness and accountability
Sarbanes-Oxley has eleven specific provisions ortitles (Table 1). However, for
purposes of thispaper, only 4 sections (Titles I, II, III, and X )are discussed
because of their direct relevance ot the accounting profession.
Title 1: public company accounting oversight board (PCAOB)
PCAOB—> fulltime, independent, nongovernmental, non-profit body that will
oversee the audit function for public companies that ave subject to security laws.
Board consist of:
• 2 practicing or non-practising certified accountants (CPA's)
• 3 non-CPA's that understand Financial statements - financial reporting and
audit responsibilities.
• appointments will be made at the securities and exchange commission (sec).
Most important duty of the board →establishment of standards for auditing and
related attestation, quality controls, ethics, and independence standards to be used
by public accounting firms that prepare statements for the sec.
, Firms need to prepare and remain 7 years of audit files, 2 difficulties appear:
• who makes determination of what documentation should be obtained?
• When is second guessing allowed as to the propriety of the decision to destroy
documents?
An audit report is required to describe:
1. Findings from the test
2. Evaluate whether the internal controls would provide reasonable assurance that
transitions are properly recorded and are made with management authorization
3. Material weaknesses in the internal control system.
Title 2: Auditor independence
The second accounting related element in the sarbanes - oxley act places major
restrictions on public accounting firms’ Ability to engage in certain types of services
two which have become mainstraim-activities for most large firms:
1. Financial information systems design and implementation
2. Internal audit outsourcing.
Sometimes non audit costs are even higher than audit related costs. But this is not
presumed to be inappropriate as auditors create valuable insights for management of
customer. 2nd rule of independence states that un auditor must change every 5 years
Final important item of auditor independence: "the red shirt provision".
• An auditing firm can't perform audit practices if that client has hired an
executive (CFO) or a member of the audit form who worked on the client’s
audit within the past year.
Title 3: Corporate responsibility
Each public-held company have an audit committee, compromised of a majority of
independent members, which will be responsible for appointing, compensations, and
overseeing the work of the company's public accounting firm. = internal control
Boy scout oath: requirement for CEO's and CFO's that certifications must be made
periodically that each quarter or annual report issued is truthful, does not omit and
material facts, and that based on the officer's knowledge, fairly represents all
significant aspects of financial difference and results operations in that period.
Clawback policy: under certain conditions of a re-statement of financials, CEO's and
CFO's will be required to forfeit certain bonuses and profits paid them
Title X: corporate tax returns
CEO should sign corporate tax return. Should is later changed to shall, to make it
an obligation.
What is management accounting and control?
• Steering an organization in such a way that the goals ave realised
Real definition: Management control is a “Systematic process by which the
organization's higher level managers influence the lower level managers (or
employees) to implement the organization's strategy”.
Goal → effective execution of strategy and higher performance in long-term.
Back in the days it was all about profit maximalization and "the few watch
the many” (panopticon). Nowadays it is the many watching the few
(synopticon).
An international setting entails:
• more stakeholders with diverging or even conflicting interests.
• different institutions.
• different balance of power, so different priorities.
• different notions of what is legitimate OR right, just, fair, or valuable
,Article I: The Sarbanes-Oxley Act of 2002: An Analysis of and Comments on the
Accounting-Related Provisions
Sarbanes_oxley act →Signed into law at 30 july 2002, in response to the wide
spread and financially devastating business scandals (Enron, WorldCom, etc.)the
act seeks to:
• restore public confidence in both public accounting and public traded
securities;
• assure ethical business practises through heightened levels of executive
awareness and accountability
Sarbanes-Oxley has eleven specific provisions ortitles (Table 1). However, for
purposes of thispaper, only 4 sections (Titles I, II, III, and X )are discussed
because of their direct relevance ot the accounting profession.
Title 1: public company accounting oversight board (PCAOB)
PCAOB—> fulltime, independent, nongovernmental, non-profit body that will
oversee the audit function for public companies that ave subject to security laws.
Board consist of:
• 2 practicing or non-practising certified accountants (CPA's)
• 3 non-CPA's that understand Financial statements - financial reporting and
audit responsibilities.
• appointments will be made at the securities and exchange commission (sec).
Most important duty of the board →establishment of standards for auditing and
related attestation, quality controls, ethics, and independence standards to be used
by public accounting firms that prepare statements for the sec.
, Firms need to prepare and remain 7 years of audit files, 2 difficulties appear:
• who makes determination of what documentation should be obtained?
• When is second guessing allowed as to the propriety of the decision to destroy
documents?
An audit report is required to describe:
1. Findings from the test
2. Evaluate whether the internal controls would provide reasonable assurance that
transitions are properly recorded and are made with management authorization
3. Material weaknesses in the internal control system.
Title 2: Auditor independence
The second accounting related element in the sarbanes - oxley act places major
restrictions on public accounting firms’ Ability to engage in certain types of services
two which have become mainstraim-activities for most large firms:
1. Financial information systems design and implementation
2. Internal audit outsourcing.
Sometimes non audit costs are even higher than audit related costs. But this is not
presumed to be inappropriate as auditors create valuable insights for management of
customer. 2nd rule of independence states that un auditor must change every 5 years
Final important item of auditor independence: "the red shirt provision".
• An auditing firm can't perform audit practices if that client has hired an
executive (CFO) or a member of the audit form who worked on the client’s
audit within the past year.
Title 3: Corporate responsibility
Each public-held company have an audit committee, compromised of a majority of
independent members, which will be responsible for appointing, compensations, and
overseeing the work of the company's public accounting firm. = internal control
Boy scout oath: requirement for CEO's and CFO's that certifications must be made
periodically that each quarter or annual report issued is truthful, does not omit and
material facts, and that based on the officer's knowledge, fairly represents all
significant aspects of financial difference and results operations in that period.
Clawback policy: under certain conditions of a re-statement of financials, CEO's and
CFO's will be required to forfeit certain bonuses and profits paid them
Title X: corporate tax returns
CEO should sign corporate tax return. Should is later changed to shall, to make it
an obligation.
