CEO and CFO perceptions about AIS impact on firm performance and financial reporting: How do SOX, COSO, and the implementation of IT help reduce fraud and increase productivity in a business?
In the multifaceted, dynamic, corporate global milieu, imminent rifts continue to rattle the arenas of accounting/finance. The personal ambitions of CEO’s and CFO’s outweighed their responsibilities toward shareholders, employees, operations, civic/ethical duties, and the general financial system. CEO’s primarily focused on their own profitability, by increasing margins, meeting shareholder/market expectations, and expanding by any means necessary. Therefore, this lead to CFO’s and other members of top management on the front lines in manipulating margins to promote growth; thereby committing various levels of fraudulent activities, mainly to manipulate poor financial performance. The intertwining of ethical dilemmas and constant conflicts of interest endangered employees, shareholders, customers, and the general public. With the passing of Sarbanes-Oxley (SOX) in 2012, the act demanded, “that corporate management design and implement internal controls over the entire financial reporting process.” (Hall, 2013) In reference to CEO turnover and the appropriateness and effectiveness of a board, board of directors that are, “dominated by independent directors are more likely to remove a CEO based on poor performance than boards dominated by insiders.” (Dah, Frye, & Hurst 2013) “During the post-SOX, significant decline in the incidence of CEO turnovers for compliant firms.” (Dah, Frye, & Hurst 2013) Top management have adopted Accounting Information Systems, utilizing information technology and new understandings of physical controls in the workplace, in their effort to comply with SOX, the Committee of Sponsoring Organizations (COSO), and to maintain ethically conscious decisions. A company’s internal controls have been under scrupulous review and are continuously examined to a point where they are in full compliance with SOX. Most of the attention is attributed to two main provisions, organized by the Public Companies Accounting Oversight Board (PCAOB) that directly relate to internal controls. Under section 404, the CEO and CFO of publicly traded companies must personally disclose and certify, quarterly and annually, an adoption of a detailed code of ethics, which includes an effective maintenance of an internal control system. This section also protects whistle-blowers. In addition, section 303 requires that the CEO and CFO must sign off on the financial statements to assure that the reports do not include any material misstatements or omissions. To further protect capital markets, corporate governance, employees, shareholders, the general public, and the auditing profession, the organization’s auditor’s assurance on management’s internal control and ethics policies is required. Top management teams understood the importance of adding IT prowess. Information Technology departments garnered more responsibility after the passing of SOX. Being held as critical importance to internal control functions in an organization, IT departments became responsible for creating, improving, executing, and modifying a series of controls, essential to reduce fraud. Additionally, IT is accountable for accumulating, processing, and storing financial data, which is utilized in financial statements, and creates audit trails for external auditors. A portion of the internal controls implemented in a business exist as IT controls, many of which are based in the computerized environment and usually pertain to financial data. Programs and processes are written and maintained by IT professionals. Fairly new and intuitive processes include automated systems. These programs have reshaped the environment of accounts reporting. They, “initiate, authorize, record, and report the effects of financial transactions.” (Hall, 2013) Automated accounting is associated...
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