Assignment
1. we have had a lot of discussions this week about accounting controls and accounting in general. The assignments this week involve a lot of accounting principles. As the text states, many people in the hospitality industry are not accustomed to the "language" of accounting and finance. As long as you have a strong accounting staff, why is it so important that you learn this language? Can you be successful in this business without knowing the difference between an income statement and a balance sheet?
2. Good internal controls are critical to the success of any good hospitality company. And it's not just important because you don't want to get in trouble when the auditors show up. Good internal controls not only involves accurate financial reporting but also things like proper inventory control, management of receivables and payables, separation of duties, etc. What experiences have you had with operations that have not had good internal controls, what did they do wrong and what should they have done? And why would stronger financial controls be even more important during an economic downturn? (think fraud).
3. excellent observations. I am sure there are some executives out there that lack moral fiber but I think most of the problem was that these executives didn't see internal controls as being a high priority. But once Sarbanes Oxley was enacted the internal audit staff of large companies expanded exponentially. They wanted to make sure that when it came time for the external audit all would be well. Good thing for accountants is that it amounted to a full employment act! Hiring third party auditors is a burden especially for small businesses, but then Dodd-Frank came along and helped out there. So class,
do you think that Dodd-Frank was the right direction?
4. As you have discovered Section 404 requires that publicly held companies require their auditor to attest to how management assesses its internal controls. This of course incurs extra cost in the audit process. The controversy is whether for small companies the benefit to the shareholders or investors is worth more than the extra cost of this assessment. So, for small companies who sees the benefit of this cost?
5. It's not easy to falsify and audit but an audit is as good as what the auditors decide to audit. I currently work for our local county government and we are being audited this month. The auditors review financial statements, look for transactions or changes on financial statements that seem out of line and then select certain transactions and ask us to provide the detail. So it's all a matter of what they decide looks questionable. But how about the section 404 question, why do you think it's so controversial? Class, please weigh in good discussion so far on Sarbanes Oxley! One of the most controversial parts of SOX was Section 404. This part of the law has been very costly to both small and large businesses. Cost benefit analysis? And how do you keep the audit companies honest when they are being paid by the companies they audit? And how about the impact on foreign companies that want to establish an American presence? Research 404 and let's talk!
Why was the Sarbanes-Oxley Act necessary? How has this Act both benefited and burdened hospitality companies? Explain your answer.
How does the American Institute of Certified Public Accountants (AICPA) help improve the quality of financial reporting? What specific standards or provisions accomplish this and how?
Great comment regarding the burden. Sarbanes-Oxley significantly increased the accountability of corporate executives. When all of a sudden you have to get the executives to sign off on all the financials and the executives could go to jail for a mistake that their CFO made what do you think changed internally within major corporations? And even small businesses?