ACCT 511 Week 7 Discussion Board Forum 2 Example

Discussion Board Forum 2: Whistleblower Protection Under Sarbanes-Oxley and Dodd-Frank

ACCT 511 Advanced Business Law for Accountants, Discussion Board Forum 2

Thread by [Student Name]

The company, the accountant and the classmates are composites; the statutes, the Supreme Court decision, Scripture and the scholarship cited are real.

Maya is a staff accountant at a publicly traded software company. While reconciling deferred revenue, she finds six large customer contracts signed in early April but dated March 30, the last day of the fiscal quarter, which allowed the company to record about $3.8 million of revenue a quarter early. She mentions it to her supervisor, who tells her the dates were "a sales issue" and that she should drop it. A week later, her performance review, previously excellent, describes her as "not a team player." The prompt asks what legal protections she has if she reports what she found. The question matters because the two federal statutes that protect whistleblowers work differently, and the order in which she acts may decide which one protects her.

Section 806 of the Sarbanes-Oxley Act prohibits a public company from discharging, demoting, threatening or otherwise discriminating against an employee who provides information about conduct the employee reasonably believes violates securities laws or SEC rules, whether the report is made to a federal agency, to Congress or to a supervisor within the company (Sarbanes-Oxley Act, 2002). Maya's report to her supervisor is protected activity, and a retaliatory review may qualify as an adverse action. Her remedy is to file a complaint with the Department of Labor within 180 days of the retaliation; if the agency does not act within a set time, she may take the claim to federal court. Remedies include reinstatement, back pay and special damages. She must show that her report contributed to the adverse action, after which the company can defend itself only by proving it would have taken the same action anyway.

The Dodd-Frank Act added a second path. It offers awards to individuals who provide original information to the SEC leading to sanctions above $1 million, and it protects whistleblowers from retaliation with double back pay and a longer filing period. In Digital Realty Trust, Inc. v. Somers (2018), however, the Supreme Court held that Dodd-Frank's anti-retaliation protection applies only to individuals who have reported a possible securities violation to the SEC. Maya's internal report alone would not qualify. Under current law, an employee who reports only inside the company keeps the shorter Sarbanes-Oxley remedy and gives up Dodd-Frank's stronger one.

The policy behind both laws is clear from research. Dyck et al. (2010) examined how frauds at large U.S. firms came to light and showed that detection depended less on investors, the SEC and auditors than on employees, the media and industry regulators, and that monetary incentives helped explain when employees came forward. Employees like Maya see the contracts and the reconciliations; outside parties often do not. My advice to her would be to document what she found and the supervisor's response, report the issue to the audit committee or the company's ethics hotline, consider filing a tip with the SEC to preserve Dodd-Frank protection and calendar the 180-day Sarbanes-Oxley deadline from the date of the review.

Proverbs 31:8-9 tells God's people to speak up for the voiceless and to defend the cause of the needy among them (English Standard Version Bible, 2001/2016). Investors who buy the company's stock on misstated revenue cannot speak for themselves; they do not know. An accountant who reports honestly, through proper channels, speaks for them.

Reply to Lucas

Lucas, you argued that Maya should always report internally first and go to the SEC only if the company fails to act, because a report inside the company lets management fix things first. I agree that internal reporting often works and that audit committees are designed to receive exactly this kind of information. Many problems are corrected quietly and quickly once the right people hear about them. The Sarbanes-Oxley Act requires public company audit committees to establish procedures for receiving and treating complaints about accounting and auditing matters, including confidential, anonymous submissions by employees (Sarbanes-Oxley Act, 2002). The legal complication is the one the Supreme Court created in Digital Realty Trust. If Maya reports only internally and the company retaliates, she keeps the Sarbanes-Oxley remedy but not Dodd-Frank's. SEC rules allow a whistleblower who reports internally to remain eligible for an award if she also reports to the SEC within 120 days, which suggests a way to combine your approach with legal protection: report internally, and send the SEC a tip at the same time or soon after. That preserves both the company's chance to fix the problem and her strongest legal protection. It also creates a dated record of what she reported and when, which helps in either forum.

Reply to Grace

Grace, you raised an important question: if Maya is a CPA, does her duty of confidentiality under the AICPA Code of Professional Conduct prevent her from reporting to the SEC? The confidentiality rule applies to members in public practice and protects confidential client information, while members in business, like Maya, owe duties of integrity and objectivity to their employer and to the public. The Code also states that the confidentiality rule does not prevent a member from complying with applicable laws and regulations, which include the securities laws and the SEC's whistleblower provisions (AICPA, 2014). For Maya, the more relevant guidance is the Code's provision on responding to pressure to subordinate judgment, which directs a member in business to discuss concerns with a supervisor, escalate to higher management or those charged with governance and consider reporting to regulators when the misstatement is not corrected. Her situation follows that path closely. She has already discussed it with her supervisor, so the next step under the Code is the audit committee. I would add, finally, that she should consult her own attorney before disclosing documents, since the way she shares them can matter if the company later claims she breached a confidentiality agreement.

References

American Institute of Certified Public Accountants. (2014). AICPA code of professional conduct. AICPA.

Digital Realty Trust, Inc. v. Somers, 583 U.S. 149 (2018).

Dyck, A., Morse, A., & Zingales, L. (2010). Who blows the whistle on corporate fraud? The Journal of Finance, 65(6), 2213-2253. https://doi.org/10.1111/j.1540-6261.2010.01614.x

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002).