Sox Act

Topics: Internal control, U.S. Securities and Exchange Commission, Enron Pages: 9 (2419 words) Published: February 9, 2013

The Sarbanes-Oxley Act of 2002







The numerous scandals that involved corporate and investors in the year 2002 such as Enron, WorldCom and Tyco came as shock to many investors in the United States. Many investors lost their money to fraudulent activities by accountability corporate making them loose confidence in financial statements provided. Such loses created concern within the government prompting them to overhaul all the existing regulatory standards to come up with new ones to restore the confidence of the investors. This paper aims to discuss those new regulatory rules; famously known as Sarbanes-Oxley Act to establish the effect they have created so far on the economy in general.

This was an act that was passed into law in 2002 by the United States congress to protect American investors from fraudulent American activities by corporations in response to the scandals that were seen in the early 2000s (United States Securities and Exchange Commission 2009). This act created new standards to be followed by corporate accountability in the USA and new penalties in case a corporate agency was involved in frauds. This act came with new specifics on financial reporting responsibilities such as strict adherence to new internal procedures and controls that were formulated to ensure that all financial records were accurate and valid. By improving the accuracy and reliability of all disclosures by corporate, the act affirmed that all investors were protected as per the security laws.

Key Components

Section 302: Disclosure Controls

This section provides provisions that mandate a set of procedures that are internal designed to ensure that all financial disclosures are accurate. The signing officers should certify that they hold responsibility for the establishment and maintenance of all internal controls and confirm that they have created those internal controls in order to guarantee information that relates to the company and its consolidated subsidiaries is well known to such officers (United States &LexisNexis 2002). The law also requires that the officers under discussion have conducted an analysis to evaluate the effectiveness of the internal controls of the company in the previous 90 days to the date of signing the report and have presented conclusions on what they think the effectiveness of the company’s internal controls are based on the evaluation as of the stipulated date. In addition to the opinion of financial statements as regards the accuracy of the statements, this section also requires external auditors to give their own view on whether effective and appropriate internal control on reporting financial statements was maintained in all materials by the management.

Section 303: Improper Influence on Conduct of Audits

This section stipulates a rule that prohibits the act of any officer or issuer using their powers to fraudulently influence or manipulate any independent certified or public accountant who takes part in the process of auditing a his/her financial statements in order to term the statements reports provided as being misleading. This law works for the interest of the public as well as to provide protection to the investors (United States Securities and Exchange Commission 2009).

Section 401: Periodic Reports Disclosure

This legislation requires that all off-balance sheet items are disclosed. This also requires that the SEC conducts a study to determine the extent to which those materials can be used and determine whether the principles of accounting were used to address the named instruments; a process that requires a report to be released after all the confirmations are made(United States &LexisNexis 2002).

Section 404: Assessment of Internal Control.

This component works to ensure that all information provided by a...
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