Sarbanes-Oxley Act 2002
Auditing profession is guided by various regulatory bodies which helps making the profession of accounting and auditing more reliable and trustworthy:-
a) Generally accepted auditing standards.
b) International auditing and assurance board.
c) Accounting standard board.
d) Public company accounting oversight board.
e) SOX (Sarbanes Oxley Act)
Sarbanes-Oxley Act of 2002 is the act passed by the Congress of United States in the year 2002 with an intention to protect the investors from the possibility of fraudulent accounting acts which are conducted by corporations (Testimony Concerning Implementation of the Sarbanes-Oxley Act of 2002). The act made certain strict reforms which are to be compulsorily followed by the corporations so as to prevent the accounting fraud and improve the disclosure made by the corporations. The act was the result of the accounting scandals like Enron, Tyco, and WorldCom in the early years of 2000. These scams shook the confidence of the investor in financial statements and demanded the need for overhaul regulatory standards.
Under Sabrnes-Oxley Act, executives must certify the internal control of their organization. Internal Control is an inherent part of this act as it requires strict guidelines of standards to be met (The …show more content…
Sarbanes-Oxly Act, 2002)
Few main benefits and reasons for enacting Sarbanes Oxley Act are that it helps to upgrade the quality of control process, prevent fraudulent activities in an organization and maintain the shareholders trust, bringing system of uniformity across the entire industry so that the investors can easily compare and then take any decision. (The Sarbanes-Oxly Act, 2002)
The act aims to achieve the transparency in the operation of companies requiring the alliances of the IT, finance and operating divisions of an organization. The Sarbanes Oxley Act increased the accuracy and validity of the financial statement for outside stakeholders.
Some of the disadvantages of Sarbanes Oxley Act are that it created challenges for the business enterprises.
There is a requirement regarding the implementation of strict internal controls for the successful implementation of SOX. The separate internal controls are required for the each accounting operation. The increased internal controls only adds the processing time to accounting functions, results in delays and slow down the entire process. The compliance with SOX requires the need for increased personnel requirements as one person cannot handle the entire work. There is a demand for the segregation of duties, because the probability of loss and embezzlement increases if one person handles all the
work.
The penalties are very strict in the SOX act even for the small or minor mistakes. The Act was issued to improve the accounting industry but it is not a final solution for the industry. It increased the financial burden on companies by increasing the cost of doing the business. Certain regulations also restrict the business operations of the companies.
Thus the strict rules and regulation enumerated in the SOX and guidance’s provided by various statuary bodies helps in making the profession of auditing more independent and valuable.
References
Testimony Concerning Implementation of the Sarbanes-Oxley Act of 2002. (n.d.). Retrieved November 16, 2015, from https://www.sec.gov/news/testimony/090903tswhd.htm
The Sarbanes-Oxly Act: Building on Our Core Values. (2003). Retrieved November 17, 2015, fromhttp://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/Standards/DownloadableDocuments/Sarbanes_Oxley.ppt.
a) Generally accepted auditing standards.
b) International auditing and assurance board.
c) Accounting standard board.
d) Public company accounting oversight board.
e) SOX (Sarbanes Oxley Act)
Sarbanes-Oxley Act of 2002 is the act passed by the Congress of United States in the year 2002 with an intention to protect the investors from the possibility of fraudulent accounting acts which are conducted by corporations (Testimony Concerning Implementation of the Sarbanes-Oxley Act of 2002). The act made certain strict reforms which are to be compulsorily followed by the corporations so as to prevent the accounting fraud and improve the disclosure made by the corporations. The act was the result of the accounting scandals like Enron, Tyco, and WorldCom in the early years of 2000. These scams shook the confidence of the investor in financial statements and demanded the need for overhaul regulatory standards.
Under Sabrnes-Oxley Act, executives must certify the internal control of their organization. Internal Control is an inherent part of this act as it requires strict guidelines of standards to be met (The …show more content…
Sarbanes-Oxly Act, 2002)
Few main benefits and reasons for enacting Sarbanes Oxley Act are that it helps to upgrade the quality of control process, prevent fraudulent activities in an organization and maintain the shareholders trust, bringing system of uniformity across the entire industry so that the investors can easily compare and then take any decision. (The Sarbanes-Oxly Act, 2002)
The act aims to achieve the transparency in the operation of companies requiring the alliances of the IT, finance and operating divisions of an organization. The Sarbanes Oxley Act increased the accuracy and validity of the financial statement for outside stakeholders.
Some of the disadvantages of Sarbanes Oxley Act are that it created challenges for the business enterprises.
There is a requirement regarding the implementation of strict internal controls for the successful implementation of SOX. The separate internal controls are required for the each accounting operation. The increased internal controls only adds the processing time to accounting functions, results in delays and slow down the entire process. The compliance with SOX requires the need for increased personnel requirements as one person cannot handle the entire work. There is a demand for the segregation of duties, because the probability of loss and embezzlement increases if one person handles all the
work.
The penalties are very strict in the SOX act even for the small or minor mistakes. The Act was issued to improve the accounting industry but it is not a final solution for the industry. It increased the financial burden on companies by increasing the cost of doing the business. Certain regulations also restrict the business operations of the companies.
Thus the strict rules and regulation enumerated in the SOX and guidance’s provided by various statuary bodies helps in making the profession of auditing more independent and valuable.
References
Testimony Concerning Implementation of the Sarbanes-Oxley Act of 2002. (n.d.). Retrieved November 16, 2015, from https://www.sec.gov/news/testimony/090903tswhd.htm
The Sarbanes-Oxly Act: Building on Our Core Values. (2003). Retrieved November 17, 2015, fromhttp://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/Standards/DownloadableDocuments/Sarbanes_Oxley.ppt.