corporate and business law

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GASPARD Virgile
LAFITTE Pierre

AC504E External auditing
Take home case
Pacific Sunwear of California Inc

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Executive summary ................................................................................................................................. 3 The Sarbanes Oxley act: a compliance plan ............................................................................................ 4 Overview: ............................................................................................................................................ 4 Summary of the Sarbanes-Oxley act: .................................................................................................. 4 The Sarbanes-Oxley 404: Checklist: .................................................................................................... 5 Auditing standards n°5: description of the procedures to comply with the section 404 ................... 5 International standards of auditing in reference with the case.......................................................... 6 Processes to comply with the Section 404.............................................................................................. 7 How to comply with the Section 404? ................................................................................................ 7 Procedures implemented by Pacific Sunwear..................................................................................... 8 Evaluation of the effectiveness of the process implemented by PacSun ........................................... 9 Impact of the information disclosed on the stock prices...................................................................... 10 Costs and benefits of Sarbanes-Oxley ................................................................................................... 13 Recommendations for PacSun .............................................................................................................. 15 References............................................................................................................................................. 16 Appendix A : Deadline for the compliance with the different sections of the act............................ 17 Appendix B: Certification required by the SEC about internal controls........................................... 19 Appendix C: Certification required by the SEC about disclosure controls ....................................... 20

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Executive summary
Pacific Sunwear of California entered in the stock market on Nasdaq in 1993. The Sarbanes Oxley act redacted in 2002, established new or enhanced standards for listing companies in the US markets and in particular the section 404 about the creation of an internal report each year, in response to a number of major corporate and accounting scandals like Enron or WorldCom.

In this report, we will establish the impact of this United States federal law on PacSun by analyzing the process engendered, influence of the disclosures on the stock price, and the cost/benefits relation.

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The Sarbanes Oxley act: a compliance plan
Overview:
The Sarbanes-Oxley act enacted in 2002 is a United States federal law to respond to some major corporate and accounting scandals such as Enron, Tyco international or World com. These scandals cost billions of dollars to investors when stock prices collapsed and decreased the public confidence about nation’s securities markets and auditing standards. So, this standard established new or improved standards and regulations, for all US public company and all foreign companies listed in the US stock markets. This act contains 11 sections and required the Securities and Exchange Commission (US regulator which regulates the securities industry and the stocks and options markets) to implement the rules and comply with the new law. The deadlines to implement SOX are exposed in Appendix 1.

Summary of the Sarbanes-Oxley act:
Then, we...
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