Pacific Sunwear Case Summary

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: ....................................................................................................
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
7 Document processes and risk management certified by the Chief Executing Officer and the
Chief Financial Officer so as to demonstrate the efficiency of the internal control system.
8 Perform continuous evaluation performed by the manager in order to establish and maintain controls and to ensure the appropriate compliance.

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Procedures implemented by Pacific Sunwear
The most expensive costs of compliance were those linked with the section 404: costs about internal controls over financial reporting. The procedures of compliance are only described for the two first years in the case study: 2004 and 2005.
Before the compliance, PacSun had not internal control system. They only created it in mid
2003 and they paid the services of a Big-4 auditing firms as required by the section 404.
They expanded the internal control department at the end of 2004.
About the procedures they implemented in 2004, PacSun followed a process in five steps:
1) Scope and plan the evaluation
2) Document the controls
3) Evaluate the design and operating effectiveness of the controls
4) Identify, assess and correct deficiencies
5) Reports on internal