The present thesis examines the impact of the Sarbanes-Oxley Act of 2002 (SOA) on European companies and identifies their attitude towards its provisions. To raise the information needed, from May until the end of June 2005 all affected European companies (290) received access to the online questionnaire. Overall nearly twenty percent responded to the questionnaire. The following key findings have been identified:
•The smaller a company is, the more problems it has to comply with the Sarbanes-Oxley Act.
•The degree of the top management’s involvement in the compliance process plays a crucial role.
•Almost every company has a formal code of ethics in place, but their senior management does not communicate it enough to their employees.
•Almost every company has a whistleblower hotline in place to let all employees raise ethics and compliance issues and many of them also indicate that it allows an anonymous, confidential reporting and follow-up on raised issues. Only 30 percent of the hotlines were managed by an outside third party.
•Most of the companies believe that the compliance costs have exceeded the benefits in 2004, but a positive trend - after the first compliance - towards the benefits can be identified.
All in all, the thesis provides a representative overview on the SOA compliance situation of European companies.
Table of Contents
1 INTRODUCTION
2 PROBLEM STATEMENT
2.1 HISTORY
2.2 FINANCIAL FRAUDS
2.2.1 Enron
2.2.2 WorldCom
2.2.3 Parmalat
2.3 SUMMARY
3 THE SARBANES-OXLEY ACT OF 2002
3.1 CONTENT
3.1.1 Title I – Public Company Accounting Oversight Board
3.1.2 Title II – Auditor Independence
3.1.3 Title III – Corporate Responsibility
3.1.4 Title IV – Enhanced Financial Disclosures
3.1.5 Title V – Analyst Conflicts of Interest
3.1.6 Title VI – Commission Resources and Authority
3.1.7 Title VII – Studies and Reports
3.1.8 Title VIII – Corporate and Criminal Fraud Accountability
3.1.9 Title IX – White-Collar Crime Penalty Enhancements
3.1.10 Title X – Corporate Tax Returns
3.1.11 Title XI – Corporate Fraud Accountability
3.2 INTERNAL CONTROL SYSTEM
3.2.1 Definition
3.2.2 Objectives
3.2.3 Committee of Sponsoring Organizations of the Treadway Commission
3.3 SUMMARY
4 THE EMPIRICAL SURVEY
4.1 LITERATURE REVIEW
4.1.1 Sarbanes-Oxley – Beyond Planning
4.1.2 Sarbanes-Oxley Implementation Survey
4.1.3 Insights on Today’s Sarbanes-Oxley and Corporate Governance Challenges
4.1.4 Internal Audit – Sarbanes-Oxley Survey
4.1.5 Business Ethics and Compliance in the Sarbanes-Oxley Era
4.1.6 Sarbanes-Oxley Compliance Costs Exceed Estimates
4.1.7 Sarbanes-Oxley Section 404 Work – Looking at the Benefits
4.1.8 Delisting and Deregistering of German Issuers in the USA
4.1.9 Summary
4.2 METHODOLOGY
4.2.1 Research Intention
4.2.2 Definition of Information Needed
4.2.3 Implementation of Variables
4.2.4 Information Collection
4.2.5 Data Preparation
4.2.6 Interim Cognition
4.2.6.1 Part I – Company Based Questions
4.2.6.2 Part II – Implementation Based Questions
4.2.6.3 Part III – Cost Based Questions
4.2.6.4 Part IV – Benefits Based Questions
4.2.7 Cognition Utilization
4.3 SUMMARY
5 EXECUTIVE SUMMARY
Objectives & Research Scope
The primary objective of this thesis is to examine the impact of the Sarbanes-Oxley Act of 2002 (SOA) on European companies, specifically assessing their attitudes toward its provisions through an empirical survey of 290 companies listed on American stock exchanges.
- The influence of the Sarbanes-Oxley Act on European corporate governance and financial reporting.
- Evaluation of implementation challenges related to Section 404, including costs and resource allocation.
- Analysis of corporate ethics programs and the prevalence of whistleblower hotlines.
- Assessment of top management involvement in the compliance process.
- Investigating the relationship between company size, internal audit capacity, and compliance performance.
Excerpt from the Book
2.2.1 Enron
Enron was originally founded in 1930 as the Northern Natural Gas Company, which was a joint venture by Northern American Power and Light Company, Lone Star Gas Company and United Lights and Railways Corporation. The joint venture ownership was dissolved step by step from 1941 until 1947 through a public stock offering. In 1979, the Northern Natural Gas Company was reorganized under a new holding company – the InterNorth Inc. InterNorth Inc. also replaced the Northern Natural Gas Company at the New York Stock Exchange. Six years later, in 1985, the Houston Natural Gas Company (HNG) was acquired by InterNorth – a transaction driven by Kenneth Lay, CEO of HNG, who was appointed to CEO of InterNorth and promptly renamed InterNorth as Enron Corporation with headquarters in Houston, Texas. Initially, he wanted to name the company Enteron, a connection of “enter” and “on”, but when it became apparent the term meant “intestinal” it was shortened immediately.
Enron’s key business consisted of trading with raw materials, mainly a distribution of futures contracts on gas or electricity over an internet platform owned by Enron. Over the years the range of businesses was enlarged, among others, from broadband capacities to data transfer and hedging on next summer’s weather. Enron represented an Asset Light – strategy. That means all assets, which were not necessarily needed for its business operations, were sourced out. This strategy should prevent a reduction of profits through missing returns on investments. Whereas online trading with electricity was running satisfactorily, other areas like the distribution of broadband capacities did not work out that profitable. The public did not care much about these areas as long as Enron still published rising profits year after year. Enron’s market value increased by U.S. $50 billion from 1996 within five years. In 20 consecutive quarters, Enron was able to raise its profits and was one of the USA’s seven largest companies, before its collapse in December 2001.
Summary of Chapters
1 INTRODUCTION: Outlines the purpose of the thesis, the research questions regarding the impact of the Sarbanes-Oxley Act on European companies, and the structure of the work.
2 PROBLEM STATEMENT: Provides the historical background of the enactment of the Sarbanes-Oxley Act, including detailed analyses of major financial frauds such as Enron, WorldCom, and Parmalat.
3 THE SARBANES-OXLEY ACT OF 2002: Details the content of the Act through its 11 titles, focusing on PCAOB, auditor independence, internal control systems (Section 404), and corporate fraud accountability.
4 THE EMPIRICAL SURVEY: Presents the literature review, research methodology, and detailed empirical findings regarding how European companies manage compliance, internal audits, costs, and benefits of the SOA.
5 EXECUTIVE SUMMARY: Recapitulates the main findings of the research, concluding that the Act is viewed as an opportunity for value creation despite high implementation efforts.
Keywords
Sarbanes-Oxley Act, SOA, Section 404, Corporate Governance, Internal Control System, Financial Fraud, Compliance, European Companies, Audit Committee, Whistleblower Hotline, Code of Ethics, Enron, WorldCom, Parmalat, Empirical Survey.
Frequently Asked Questions
What is the primary purpose of this master's thesis?
The thesis examines the impact of the Sarbanes-Oxley Act of 2002 (SOA) on European companies and analyzes their attitudes and reactions to its complex compliance requirements.
What are the central thematic areas covered in this work?
The research focuses on financial fraud history, the specific legal provisions of the Sarbanes-Oxley Act, internal control systems, and empirical evidence from a survey regarding compliance costs, benefits, and management attitudes.
What is the primary research question?
The central question is "How does the Sarbanes-Oxley Act impact European companies?" which is further divided into sub-questions regarding the reasons for the enactment of the Act, its definition, and how European firms are affected.
Which scientific methods are applied in this research?
The author utilizes an empirical survey method, conducting an online questionnaire with 290 European companies listed on American stock exchanges, and analyzes the resulting data using statistical correlation methods like Bravais-Pearson in SPSS.
What topics are discussed in the main part of the thesis?
The main part covers the historical context (frauds like Enron/WorldCom/Parmalat), a detailed breakdown of the 11 titles of the Sarbanes-Oxley Act, and an empirical survey analyzing compliance progress, costs, benefits, and corporate governance.
What are the characteristic keywords of this study?
Key terms include Sarbanes-Oxley Act (SOA), Section 404, internal control systems, corporate governance, empirical survey, and financial compliance.
What role does Section 404 play within the scope of the Act?
Section 404 is identified as the cornerstone of the Act, requiring companies to establish and maintain an effective internal control system for financial reporting, which demands the greatest implementation effort.
What is the "COSO cube" mentioned in the thesis?
The COSO cube is a recommended framework for internal control systems, used to measure effectiveness across operations, financial reporting, and compliance criteria.
How do European companies view the Sarbanes-Oxley Act?
The survey results indicate that most European companies view the Act not merely as an imposition, but as an opportunity to improve their internal processes and create value, despite the high costs involved.
- Citar trabajo
- Mag. Peter Krimmer (Autor), 2005, The Sarbanes-Oxley Act and Its Impact on European Companies, Múnich, GRIN Verlag, https://www.grin.com/document/48800
