Assignment On Sarbanes Oaxley Act 9
Assignment On Sarbanes Oaxley Act 9
Assignment On Sarbanes Oaxley Act 9
The Sarbanes Oxley act is a U.S. federal law that aims to protect investors by
making corporate disclosures more reliable and accurate. The act was passed because of major
scandal in the United State.as Enron and WorldCom, which tricked investor and inflated stock
prices. This act was sponsored by US Senator Paul Sarbanes and Representatives Michel Oxley
and signed by President George W. Bush on July 30, 2002. This act establishes new and
enhanced standards for all US public company boards, management and public accounting firms.
Purposes:
To stop scams
To protect investors
Review legislative Audit requirement
Boost public confidence in accounting system
Applicability:
Major provisions:
The Sarbanes Oxley act consist of eleven sections in which section 302,401, 404,
409 and 802 are very important.
Section 302:
The documents have been reviewed by signing officers and passed internal controls
within the last 90 days.
1
The documents are free of untrue statements or misleading omissions.
The documents truthfully represent the company’s financial health and position.
The documents must be accompanied by a list of all deficiencies or changes in internal
controls and information on any fraud involving company employees.
Section 401
Financial statements are required to be accurate. Financial statements should also represent any
off-balance liabilities, transactions, or obligations.
Section 404
Companies must publish a detailed statement in their annual reports explaining the structure of
internal controls used. The information must also be made available regarding the procedures
used for financial reporting. The statement should also assess the effectiveness of the internal
controls and reporting procedures.
The accounting firm auditing the statements must also assess the internal controls and reporting
procedures as part of the audit process.
Section 409
Companies are required to urgently disclose drastic changes in their financial position or
operations, including acquisitions, divestments, and major personnel departures. The changes are
to be presented in clear, unambiguous terms.
Section 802
Any company official found guilty of concealing, destroying, or altering documents, with
the intent to disrupt an investigation, could face up to 20 years in prison and applicable
fines.
2
Any accountant who knowingly aids company officials in destroying, altering, or
falsifying financial statements could face up to 10 years in prison.
Conclusion:
In conclusion, the establishment of the SOX Act makes corporations liable for accurate and up to
date reporting of financial data. To evaluate the effectiveness of SOX in preventing future frauds,
one must take into consideration the many different situations in which the legislation is
applicable. Enactment of the Sarbanes-Oxley Act increases corporate responsibility and sets
restrictions on auditing services. The SOX Act reduces the potential for fraud; however, it does
not eliminate it. From a business perspective, compliance is beneficial. The cost of implementing
SOX requirements are high, but the benefit of increased investor confidence is higher. There are
going to be some situations where fraud is inevitable. Fraudulent wrongdoers and companies will
find loopholes and recent Court of Appeals cases are evidence of that. As with any law, this
regulation will reduce the frequency but not completely prevent future criminal activity.