Sarbanes Oxley Act
Executive Summary: Financial reporting has been dissected over and over again by legislation. The U.S. Securities and Exchange Commission (SEC) hold the key to providing protection and integrity when companies are submitting their financial statements. Although their mission is to provide order and efficiency for financial markets, insidious plans are still developed by companies which ultimately result in turmoil to the economy. To provide a safeguard to investors, the Sarbanes-Oxley Act (SOX) was passed by congress in 2002, which was constructed because of fraudulent acts of well-known companies such as Enron. Before the SOX was inaugurated, two sets of accounting rules were used as guides for CPA firms. These two practices were GAAP, which stands for Generally Accepted Accounting Principles and GAAS, which stands for Generally Accepted Auditing Standards. Creditability was the basic foundation for both of these principles, but had to be enforced with the Sarbanes Oxley Act when corporate scandals became prevalent. In order to gain a better understanding of SOX, which has superseded the rules of GAAS and GAAP, an analysis was conducted on four issues that relate to the Act. The four issues at hand are: the CEO’s and CFO’s of public companies, Section 404 on internal control, the main advantages and disadvantages, and what changes should be made to SOX. Finally, a discussion about how legislation cannot guarantee the accuracy of public financial statements will be examined. Along with this issue, Team Nitpickers will dig deeper and look into reasons as to why CEO’s and CFO’s are paying closer attention to this law.
The CEO’s and CFO’s of Public Companies
Internal Controls This section discusses how Section 404 of the SOX is likely to affect the issue of internal controls. Section 404 was intended to enhance the quality of reporting and increase investor confidence (Office of Economic Analysis, 2009). Section 404 of the SOX, entitled
The CEO’s and CFO’s of Public Companies
Internal Controls This section discusses how Section 404 of the SOX is likely to affect the issue of internal controls. Section 404 was intended to enhance the quality of reporting and increase investor confidence (Office of Economic Analysis, 2009). Section 404 of the SOX, entitled
References: AICPA (2005). Management Override of Internal Control: The Achilles’ Heel of Fraud Prevention AICPA (2006). Summary of the Provisions of the Sarbanes-Oxley Act of 2002. Retrieved on November 8, 2010 from Callahan, C. (2010). Sarbanes-Oxley – Introduction to SOX. Retrieved from WebTycho Classroom Week 6 class material on November 9, 2010. Erhemjamts, Gupta and Tumennasan (2009). The Effect of Sarbanes-Oxley Act on CFO Compensation and Rank. Retrieved on November 9, 2010 from http://69.175.2.130/~finman/Reno/Papers/Effect_of_SOX_on_CFO_Comp_and_Rank.pdf Institute of Internal Auditors Jahmani, Y. and Dowling, W. A. (October 2008). The Impact of Sarbanes-Oxley Act. Journal of Business & Economics Research. 6(10). Livingstone, L Livingstone, Les (2004). Fact, not Fiction: Financial Statement for the Real World. MBA In a Box, Crown Business, Random House. Schroeder, R. (2006). Proposed auditing changes draw applause. The Wall Street Journal, Market Watch. http://www.marketwatch.com/story/proposed-sarbanes-oxley-changes- draw-applause. Wutkowski, K. & Younglai, R. (2007). SEC adopts new guidance for Sarbanes-Oxley. Reuters. http://www.reuters.com/article/idUSN2323489520070523?pageNumber=1.