Corporate Government & Accountability in the Non-profit sector.

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ACC 511 Corpporate Governance & Accountability

Assignment 2

TABLE OF CONTENT

  1. Question 1                                                                                Page
  1. Oversight Functions in Non-Profit Sector                                        2
  2. Main Provisions of Sarbanes-Oxley Act                                        3
  1. Independent and Competent Audit Committee                        4
  2. Responsibilities of Auditors                                                4
  3. Certified Financial Statement                                                5
  4. Insider Transactions and Conflicts of Interest                        5
  5. Disclosure                                                                5-6
  6. Whistle-Blower Protection and Document Destruction                6
  1. Conclusion                                                                        6
  1. Question 2
  1. Public Trust in Non-Profit Sector                                                7
  2. Restoring Public Confidence in Non-Profit Sector                                7-8
  3. Performance Evaluation System for Non-Profit Sector                        8-9
  4. Panel Recommendations to Non-Profit Sector                                           9
  1. Filling of Form                                                        9
  2. Disclosure of Compensations                                                10
  3. Code of Ethics                                                                10
  4. Independent Rules                                                        10
  1. Conclusions                                                                        11
  1. Question 3
  1. Accountability in Non-Profit Sector                                                 12-13
  2. Ethic Climates                                                                         13-14
  3. Code of Ethics                                                                         14-15
  4. Conclusion                                                                        15

4.0        References                                                                                 16-18        

QUESTION 1

Discuss the importance of the provisions of the Sarbanes-Oxley Act in relation to how the provisions may help increase accountability within the non-profit sector? (10 Marks)

Oversight Functions in Non-Profit Sector

Non-for-profit organizations are usually established to achieve philanthropic purposes rather than maximize the wealth of their stakeholders. The primary purpose of nonprofit sector is to serve the public rather than earn profit. As general, their values are to meet client needs (Alexander & Weiner, 1998; Green & Griesinger, 1996). Organizations includes voluntary and community sectors, such as education authorities, hospital trust, sports organizations, and other nonprofit entities and non-governmental. The Harvard Business Review in May 2003 that $100 billion could save to give scholarship in high school student across the country. Public have concerned that nonprofit organizations do not use charitable dollars as efficiently as possible to advance their charitable mission (Bradley, Jansen, & Silverman, 2003).

Publics and donators are interested to find out how well their donations are being spent; and asking the charity agencies that what kind of comprehensive evaluation to assess their performance. No doubt those publics are more willing to donate their money to charity agencies and nonprofit sector if they are more accountable (Gottlieb, 2003). Recent the Senate Finance Committee has raised questions improving corporate governance and accountability within the nonprofit sector. The emerging corporate governance reforms are aimed at improving corporate governance, accountability, and responsibility in Non-for-profit organizations. Therefore, it advices that nonprofit sector should move towards a corporate governance model rather stay with the philanthropic governance model (Alexander & Weiner, 1998).

Main Provisions of Sarbanes-Oxley Act

The American Competitiveness and Corporate Accountability Act, commonly known as Sarbanes-Oxley Act, was passed in July 30, 2002, to strengthen regulations in corporate governance and restore investor confidence following major public traded companies as well as to nonprofit sector. The act addresses perceived weaknesses in auditing, reporting and corporate governance in both profit and nonprofit companies. The act also enhances internal control and corporate governance by establishing enforces standards and guidelines. Independent Sector and Board Source, 2003 reported the provisions of SOX serve as a wake-up call to the entire nonprofit sector to ensure effective governance and increase accountability standards and regulations. President George W. Bush declared that this SOCK delivers the high standards of audit profession i.e. both auditors and accountants will be held their responsibilities (Office of the Press Secretary, 2002).

Most financial scandals were perceived that the close relationship between companies and their external auditors was largely to blame from. Therefore, the provision of the SOX defines and creates the role of the Public Company Accounting Oversight Board, in job to elect independent and competent audit committee members to ensure that financial reporting procedures are in standard. The provisions act seeks to strengthen external auditor independence as well as to strengthen the audit committee. Independent Sector and Board Source argued that directors owe their fiduciary duties to the companies, where comprises shareholders, resources of companies; as consequently, directors must take charge of auditing practices and financial reporting (Hechinger, 2003). The Securities and Exchange Commission, SEC has implemented and titled for “Auditor Independence” prohibits the certain non-audit services to clients, mandatory rotation of audit partners, and auditors’ report on effectiveness of internal controls. As result, the provisions of SOX are greater refining acts to nonprofit sector for continued growth of corporate accountability to the community.

Several provisions of SOX address participants in the financial reporting, audit committee and the managements. These provisions focus more on corporate accountability, fiscal responsibility and governance structures. Currently, two generally applicable provisions of SOX directly impact to nonprofit sector which are whistleblower protection

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provisions and document destructions. That is the calls for closes most of the loopholes in nonprofit sector in relating to documents destruction, impeding of official proceedings and whistleblower provisions.

Independent and Competent Audit Committee

The SOX Act applied criminal and civil penalties for nonprofit sector required certification of internal auditing and increased financial disclosure. Many nonprofit organizations conduct small and medium size which does not usually have separate audit committees (Persaud & Mason, 2000). Under the provisions, each member of audit committee must be independence as defines as not being part of the team of ...

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