Reference no: EM133192164

Part A: Debate This:

Only the largest publicly held companies should be subject to the Sarbanes-Oxley Act.

Debate This: Sarbanes-Oxley Act

Superior Wholesale Corporation planned to purchase Regal Furniture, Inc., and wished to deter-mine Regal's net worth. Superior hired Lynette Shuebke, of the accounting firm Shuebke Delgado, to review an audit that had been prepared by Norman Chase, the accountant for Regal. Shuebke advised Superior that Chase had performed a high-quality audit and that Regal's inventory on the audit dates was stated accurately on the general ledger. As a result of these representations, Superior went forward with its purchase of Regal.

After the purchase, Superior discovered that the audit by Chase had been materially inaccurate and misleading, primarily because the inventory had been grossly overstated on the balance sheet. Later, a former Regal employee who had begun working for Superior exposed an e-mail exchange between Chase and former Regal chief executive officer Buddy Gantry. The exchange revealed that Chase had cooperated in overstating the inventory and understating Regal's tax liability. Using the information presented in the chapter, answer the following questions.

Question 1.If Shuebke's review was conducted in good faith and conformed to generally accepted accounting principles, could Superior hold Shuebke Delgado liable for negligently failing to detect material omissions in Chase's audit? Why or why not?

Question 2. According to the rule adopted by the majority of courts to determine accountants' liability to third parties, could Chase be liable to Superior? Explain.

Question 3.Generally, what requirements must be met before Superior can recover damages under Sec-tion 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Can Superior meet these requirements?

Question 4.Suppose that a court determined that Chase had aided Regal in willfully understating its tax liability. What is the maximum penalty that could be imposed on Chase?

Part B: write an comment/ opinion about the following post

The largest publicly held companies should not be the only ones subject to the Sarbanes-Oxley Act. This Act was created to regulate the accounting practice of accounting firms that do auditing for companies that sell shares to the public (Miller, 2021). The objective of the law was to prevent accounting firms from being used in fraud and other activities that can result in damages (Miller, 2021). Both large and small publicly held companies should be subject to Sarbanes-Oxley Act because companies that sell securities to the public involve either of them. Requiring only the largest publicly held companies to be subject to this law assumes that it is only these companies that sell securities to the public investors. Both the large and small companies are subject to the securities law. Both companies have the potential of engaging in fraud by intentionally misrepresenting their accounting information. Following Sarbanes-Oxley Act requirements will help to minimize fraud (Miller, 2021). Chase was not a large publicly held company yet it engaged in fraud. Superior, the company that purchased it, was large. It discovered that Chase's accountant had misrepresented Chase's inventory by grossly overstating it. As a result of this misrepresentation, public investors at Superior will make a loss. Sarbanes-Oxley Act seeks to protect the public investors from such misfortunes despite the size of the companies. It ought to ensure that the auditors and accountants maintain a high level of professionalism. This would lead to the production of audits that are accurate and reliable (Miller, 2021). Once the law is complied with, auditing is done in good faith. This minimizes the risk of fraud, and subsequently loss of money. Being subject to the law would make the accountants and auditors who work for these companies to be very careful so as to avoid liability.