Making Smart Decisions, and SOX 404

David M. Cannon, Joseph H. Godwin, and Stephen R. Goldberg

BOOKS REVIEWED:

Singh, Hari, 2006, Framed!Solve an Intriguing Mystery andMaster How to Make SmartChoices (Amherst, MA: HRDPress).

Ramos, Michael, 2006, How toComply with Sarbanes-OxleySection 404: Assessing the Effec-tiveness of Internal Control (2nded.) (Hoboken, NJ: John Wiley& Sons).

The books selected forreview address the topics ofdecision making and compliancewith Section 404 of the Sar-banes-Oxley Act. Singh presentsfundamentals of decision makingin an interesting fictional setting.Ramos provides comprehensiveguidance on compliance withassessing the effectiveness ofinternal control under SOX.

FRAMED! SOLVE ANINTRIGUING MYSTERY ANDMASTER HOW TO MAKESMART CHOICES

Singh provides readers withprinciples of decision makingwoven into parallel stories ofmurder and business consulting.

In the spirit of Goldratt andCox’s The Goal: A Process ofOngoing Improvement (NorthRiver Press Publishing Corpora-tion, 1993), Singh adds to thegenre of using a fictional settingto convey business concepts. Themain characters are students inan MBA class whose focus is onstrategic business decision mak-ing. A student is murdered. Stu-dents apply the skills they learnin class to both a business casestudy and to solving the murderof their friend. Dr. Singh is aprofessor of economics andteaches decision making in hisgraduate and undergraduatecourses.

Framed! is easy to followand edge-of-your-seat reading.Many important insights into thestructure and application of deci-sion making are demonstrated toreaders. The book consists of227 pages, 20 chapters (plus anepilogue), and four appendices.The four appendices contain (1)key concepts and questions, (2) adecision-making checklist, (3) aglossary, and (4) references anda conceptual overview.

One of the characters of thenovel is Professor Armstrong,who uses acrostic phrases andmantras to teach key decision-

making concepts in his class.His students use these conceptsto make recommendations for afictional company specializingin medical treatments, PremierAdvanced Cardio Enterprises(PACE). These decision conceptsare also applied to determine themurderer of one of their class-mates. A mantra is presented foreach of the seven key decisionmaking concepts represented bythe acrostic phrase: The WiseCan Give New Direction Today.

The first mantra, The nameof the game is the frame, empha-sizes the importance of properframing in the decision-makingprocess. The frame should con-sider objectives, gathering infor-mation, determining alternatives,and limiting boundaries as towhat is included and excludedfrom the decision makingprocess. The second mantra,Weigh the anchor without ran-cor, teaches us not to anchor ourthinking to arbitrary referencepoints. Cause and effect is hardto detect reminds us that justbecause two factors or events areassociated with each other doesnot necessarily imply one causesthe other. Gravitate to your ownrisk taste tells us to consider riskpreferences and circumstances in

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© 2006 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com).DOI 10.1002/jcaf.20249

decision making. Negotiate andtrust or go bust introduces gametheory and the prisoner’s dilem-ma. This covers the notion thatmutual and self-interests arethreatened if we consider onlyour own self-interest. Deliberate,investigate, and evaluate empha-sizes the importance of an evalu-ation method. WARS (WeighingAttributes and Ranking Scores),a general procedure for evalua-tion, is discussed, along with themore specific balance-sheetmethod. The last mantra, Trackand listen to your feedback,emphasizes that obtaining rele-vant feedback on consequencesof decisions is critical to improv-ing future decision making.

Framed! is an interestingand fun approach to understand-ing fundamentals of decisionmaking. It is largely designed tosupplement a graduate-levelbusiness or economics course indecision making. However, it isalso recommended reading formanagers and aspiring managerslooking to better understand abasic framework for decisionmaking.

HOW TO COMPLY WITHSARBANES-OXLEY SECTION404: ASSESSING THEEFFECTIVENESS OF INTERNALCONTROL (2ND ED.)

The second edition of Howto Comply with Sarbanes-OxleySection 404 is the latest clear,concise, and comprehensiveauditing guidebook in MichaelRamos’s portfolio. While thefirst edition of this book reflect-ed uncertainty and confusionsurrounding requirements of theSarbanes-Oxley Act (SOX) backin 2003, this new edition incor-porates recently issued guidanceof the Public Company Account-ing Oversight Board (PCAOB),

the Securities and ExchangeCommission (SEC), and the les-sons learned from public compa-ny SOX compliance initiativesover the past three years.

Ramos’s book is organizedinto eight chapters, each withtwo to four appendices. Thebook is true to its title and focus-es on compliance with Section404. Unlike many SOX books,there is little discussion of thehistory of SOX, the politicsbehind the law, or the majoraccounting scandals of the pastfew years. The tone of the booktreats all of these as the irrele-vancies they are to a CFO orauditor trying to comply with theprovisions of SOX. The chaptersfollow a logical sequence, begin-ning with an overview of theSOX Section 404 requirementsand the role of each of the par-ties involved in Section 404compliance and ending with therequired report on internal con-trol. The chapter sequence large-ly follows the phases of an auditengagement.

The first chapter overviewsSection 404 requirements ofmanagement and the indepen-dent auditor. Chapter 2 is ananalysis of the two major inter-nal control frameworks used incompliance activities, the Com-mittee of Sponsoring Organiza-tions of the Treadway Commis-sion (COSO) and ControlObjectives for Information andRelated Technology (COBIT).The chapter is an excellentoverview of both frameworks.

Chapter 3 discusses planningthe Section 404 complianceaudit, while Chapter 4 providesguidance on how to identify sig-nificant control objectives. Thefifth chapter deals with docu-mentation of significant con-trols. Chapters 6 and 7 covertesting and evaluation of organi-

zational-level and activity-levelcontrols, respectively. The finalchapter deals with the evaluationof internal control deficienciesand drafting the Section 404report.

The appendices at the end ofeach chapter are particularlyvaluable for those in the processof organizing a SOX complianceinitiative. Examples of actionplans, questionnaires, and otherdocuments can be used as afoundation for the creation ofsuch documents tailored for usein a specific organization.

The major strengths of thisbook are its comprehensivenessand well-organized structure.Ramos wastes no time in gettingto the point about a concept, andfew, if any, questions about atopic remained after reading therelevant chapter. Auditors willquickly note that the material isorganized around the sequencethat a typical audit engagementwould follow. Overall, this bookis well written and well edited,and the exhibits and appendicesare clear, logical, and relate tothe chapter discussions.

Ramos’s book is recom-mended for accounting andfinance managers and execu-tives, internal and external audi-tors, corporate attorneys, andothers that need to understandthe process of complying withSOX 404, and the various rolesand responsibilities of thoseinvolved in the process. Thisbook would also make an excel-lent supplement for a graduate-level auditing class and is suit-able as the major reading in agraduate-level special topicscourse on Sarbanes-Oxley.Potential readers are cautionedthat this book assumes priorknowledge of the audit processand some familiarity withSarbanes-Oxley.

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DOI 10.1002/jcaf © 2006 Wiley Periodicals, Inc.

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© 2006 Wiley Periodicals, Inc. DOI 10.1002/jcaf

David M. Cannon, PhD, CPA, CISA, is an assistant professor at Grand Valley State University. Dr. Cannon’steaching interests are in accounting information systems, management information systems, and mana-gerial accounting. His research areas include accounting information systems and methodological issuesin accounting research. Joseph H. Godwin, PhD, CPA, and Stephen R. Goldberg, PhD, CPA, are profes-sors of accounting at Grand Valley State University. Their teaching and research interests focus on finan-cial accounting, international accounting, financial derivatives, and economic value added. They have pub-lished articles in a number of academic as well as practitioner-oriented journals.