Final Version of Action Research Proposal
1. Setting Description:
Name of organization and location where action research will take place: Inkplus LLC, Coral Gables FL
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.
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:
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
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...