Case study for seminar work
-Pacific Sunwear of California, Inc.
1. Discuss the different types of control that SOX implies for PacSun; what action, results, personnel and cultural controls are used? Action control: Section 302 of SOX required both the company’s CEO and CFO to personally certify the “appropriateness of the financial statements and disclosures contained in the periodic report”. PacSun top management required their subordinates to share the certification responsibility. Through this responsibility sharing, the whole organization is engaged in this certification requirement. Results control: Section 404 dealt with internal controls over financial reporting (ICOFR)-the processes that are designed to ensure the reliability of the financial reporting process and the preparation of financial statements. Section 404 required management to (1) accept responsibility for the effectiveness of the company’s ICOFR; (2) evaluate the effectiveness of the company’s ICOFR using suitable control criteria; (3) support the valuation with sufficient evidence (documentations); (4) present a written assignment of the effectiveness of the company’s ICOFR yearly. As part of the assessment, management had to determine if identified internal control deficiencies constituted significant deficiencies or material weaknesses. To evaluate the management’s control, an internal audit function was created. Personnel control: several SOX orientation sessions were offered in combination with other training programs, such as for store personnel. Cultural control: PacSun must receive “clean” opinion and financial statement from the external auditors each fiscal year for the company to keep on running.
2. Discuss the benefits and costs for PacSun of complying with SOX. Is it worth it? Benefits: The Company received “clean” opinion and financial statements from the external auditors, which is good for the image of the company when this information disclosed to public. Also in SOX...
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