Sarbanes-Oxley Act Relates to Internal Control

Topics: Enron, Internal control, Sarbanes–Oxley Act Pages: 5 (1393 words) Published: December 7, 2010
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How the Sarbanes-Oxley Act relates to Internal Control?

Paris Hudnall

Accounting 1
Instructor Wiley
December 1, 2010

How the Sarbanes-Oxley Act relates to Internal Control?

Former President George W. Bush signed the Sarbanes-Oxley Act on July 30, 2002. The Sarbanes-Oxley Act also known as Public Company Accounting Reform, and called Sarbanes-Oxley, or SOX (Wikipedia n.d.) The enactment of this United State federal law was written for publicly traded companies to provide guidelines to corporations to assist with improving their internal control. Internal control is organizational plan and various measures created by a corporation to safeguard assets, encourage employees to follow company policy, promote operational efficiency, ensure accurate, and reliable accounting records. (Horngren, Harrison, and Oliver 2010) .corporations, such as Tyco International, Enron, and WorldCom were part of a scandal, because they participated in over stating earning, profits, questionable accounting practice, lack of independent auditing, and weak corporate governance (Wikipedia n.d.). These scandals cost investors billions of dollars, the collapse of Enron, consumers’ jobs and weaken the consumer confidence. Corruption within the corporation occurred due to the lack of internal controls systems. The Sarbanes-Oxley Act contains 11 titles with several sections, which outlining the requirements in which corporations must implement to improve their internal corporate governance and accounting practice. (Wikipedia n.d.). The Sarbanes-Oxley Act will improve the internal control of monitoring, information system, control procedures, environment control and risk assessment. This paper will look at four key provisions in the Sarbanes-Oxley Act that focuses on corporation internal controls, regulations on how corporations managed their company internal structure and accountability in the area of outlining management assessment of internal controls, corporation responsibility, finance reporting, disclosure of reports, time period of disclosures, and criminal penalties for altering documents. Title IV section 404; Management Assessment of Internal Controls ensures corporations have organizational plan and guidelines (FindLaw Sec: 404 n.d.). Guidelines in the corporation help establish an expectation within the work place, and everyone is working toward the same gold. In order to achieve this goal management must submit an annual report, which states the responsibility of management for establishing and maintaining a sufficient internal control structure, and procedure for financial reporting (CPA Journal 2207). By establishing these corporate interior procedures, it safeguard corporate asset by holding the corporation liable for reviewing financing documents and separation of duties limit financing fraud. Saharan-Oxley Act require at the end of the fiscal year the corporation has to report the effectiveness of the internal control structure and the procedure used for the financial reports (FindLaw Sec: 404b, n.d.). These internal guidelines increasing the accuracy of proper record keeping, corporate information more reliable and increase profitability. Title III of the Sarbanes- Oxley Act is Corporate Responsibility. Section 302; outline corporation responsibility for the corporation financial reports. Sarbanes-Oxley Act place more responsibility on senior executive in the accuracy of corporate financial reports (, n.d.). One component of internal control is the corporate environment, which beginning with the owner of the corporation (Horngren, Harrison, and Oliver 2010). The owner or senior executive show honest and respect for the rules of the corporation, which set the example for the employees (Horngren, Harrison, and Oliver 2010). Management assigns responsibilities to employees and separation of duties, as part of the internal procedure. By placing limitations on...
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