The Sarbanes Oxley Act of 2002 (SOX) served to focus auditors’ attention, and users’ and managements’ as well, on internal control. Was SOX right in identifying internal control as the solution to management fraud? Do you believe the added requirements to report separately on internal control are necessary? Do you think they have worked? And will they work in the future?
In Chapter 8 Schilit discusses four (4) techniques to shift current income to a later period . One of these techniques is “creating reserves in conjunction with an acquisition and releasing them into income in a later period”. Why would this be done? How can an auditor detect this scheme? Is it illegal?