Sarbanes-Oxley Act Research Paper
Sarbanes-Oxley Act
ACC/290
President George W. Bush signed the Sarbanes-Oxley Act (SOX) into law on July 30, 2002 following the Enron and WorldCom accounting scandals. The name of the act comes from the names of its creators: Senator Paul Sarbanes (D-Maryland) and Congressman Michael Oxley (R-Ohio). The Sarbanes-Oxley Act was created to restore the public confidence in both public accounting and publicly traded securities, and to assure ethical business practices through heightened levels of executive awareness and accountability (University of California Santa Cruz, n.d.). With the Sarbanes-Oxley Act came many changes in the accounting practices for businesses, and also changes in internal controls to ensure compliance. …show more content…
Effects of Sarbanes-Oxley Act The Sarbanes-Oxley Act of 2002 (SOX) has made a huge impact on accounting.
The SOX act requires that financial statements must be accurate and contain truthful information. All financial statements must include transactions not on financial statements (University of California Santa Cruz, n.d.). These types of liabilities and obligations were financial commitments that companies weren’t required to report, yet they had an impact on the company’s financial condition. All annual reports must show the scope and adequacy of internal control structures and financial reporting procedures used. An outside accounting firm must report how adequate the internal control structures and financial reporting procedures are. Also, all changes in the company’s financial structure must be reported, and fully disclosed to the public …show more content…
immediately.
Internal Controls The Sarbanes-Oxley Act of 2002 has created new standards for organizations in the United States. Sections of the new standards are implemented to help increase internal control in accounting practices to prevent fraud. All U.S corporations that are publicly traded must comply with an adequate standard of internal control. Periodic statutory financial reports must get certified, which makes the top officers responsible for making sure the effectiveness of the internal control within 90 days, and report their evaluations of their conclusions. The use of outside auditors has also increased to review the accuracy of an organization’s financial statements (Kimmel, Weygandt,& Kieso, 2010).
The role of the internal control in SOX 2002 requires that an organization’s top official certify that all of their financial information is in fact accurate, and report any related factors that may have a negative impact on internal control including reporting fraud. If a corporation fails to meet the SOX guidelines, fines will be given, and top executives may even be prosecuted. A public Company Accounting Oversight Board was created to allow auditing standards, and regulate the activities of outside auditors. The primary components of internal control includes: having a controlled environment, risk assessments, controlled activities, information and communication, and monitoring. Internal control also has six principles of controlled activates which include: establishments of responsibilities, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resources control (Kimmel, Weygandt,& Kieso, 2010).
Conclusion
All the accounting scandals over the past several years definitely have changed the accounting process.
The Sarbanes-Oxley Act has restored the public confidence in public accounting and publicly traded securities, and assures ethical business practices through heightened levels of awareness and accountability. These changes have made the accounting process more in-depth and lengthy for businesses, but in turn financial statements are more accurate. The Sarbanes-Oxely Act holds businesses to a heightened level of accountability for the accuracy of accounting records improving the integrity of the business (D.G. McDermott Associates, LLC.,
2013). References
D.G. McDermott Associates, LLC. (2013). How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession. Retrieved from http://www.dgm.com/information-center/sarbanes-oxley-information/how-the-sarbanes-oxley-act-of-2002-impacts-the-accounting-profession/
Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2010). Financial Accounting: Tools for business decision making (5th ed). Hoboken, NJ: John Wiley & Sons.
University of California Santa Cruz. (n.d.). Sarbanes-Oxley Act of 2002. Retrieved from https://www.google.com/url?q=http://ic.ucsc.edu/~shep/Sarbanes/Sarbanes-Oxley%2520Presentation.ppt&sa=U&ei=LPDyUYeeCMXeqQGT_4CABQ&ved=0CAcQFjAA&client=internal-uds-se&usg=AFQjCNGT058PqDPRDqpuBCJL9Hk6C6YwGw
ACC/290
President George W. Bush signed the Sarbanes-Oxley Act (SOX) into law on July 30, 2002 following the Enron and WorldCom accounting scandals. The name of the act comes from the names of its creators: Senator Paul Sarbanes (D-Maryland) and Congressman Michael Oxley (R-Ohio). The Sarbanes-Oxley Act was created to restore the public confidence in both public accounting and publicly traded securities, and to assure ethical business practices through heightened levels of executive awareness and accountability (University of California Santa Cruz, n.d.). With the Sarbanes-Oxley Act came many changes in the accounting practices for businesses, and also changes in internal controls to ensure compliance. …show more content…
Effects of Sarbanes-Oxley Act The Sarbanes-Oxley Act of 2002 (SOX) has made a huge impact on accounting.
The SOX act requires that financial statements must be accurate and contain truthful information. All financial statements must include transactions not on financial statements (University of California Santa Cruz, n.d.). These types of liabilities and obligations were financial commitments that companies weren’t required to report, yet they had an impact on the company’s financial condition. All annual reports must show the scope and adequacy of internal control structures and financial reporting procedures used. An outside accounting firm must report how adequate the internal control structures and financial reporting procedures are. Also, all changes in the company’s financial structure must be reported, and fully disclosed to the public …show more content…
immediately.
Internal Controls The Sarbanes-Oxley Act of 2002 has created new standards for organizations in the United States. Sections of the new standards are implemented to help increase internal control in accounting practices to prevent fraud. All U.S corporations that are publicly traded must comply with an adequate standard of internal control. Periodic statutory financial reports must get certified, which makes the top officers responsible for making sure the effectiveness of the internal control within 90 days, and report their evaluations of their conclusions. The use of outside auditors has also increased to review the accuracy of an organization’s financial statements (Kimmel, Weygandt,& Kieso, 2010).
The role of the internal control in SOX 2002 requires that an organization’s top official certify that all of their financial information is in fact accurate, and report any related factors that may have a negative impact on internal control including reporting fraud. If a corporation fails to meet the SOX guidelines, fines will be given, and top executives may even be prosecuted. A public Company Accounting Oversight Board was created to allow auditing standards, and regulate the activities of outside auditors. The primary components of internal control includes: having a controlled environment, risk assessments, controlled activities, information and communication, and monitoring. Internal control also has six principles of controlled activates which include: establishments of responsibilities, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resources control (Kimmel, Weygandt,& Kieso, 2010).
Conclusion
All the accounting scandals over the past several years definitely have changed the accounting process.
The Sarbanes-Oxley Act has restored the public confidence in public accounting and publicly traded securities, and assures ethical business practices through heightened levels of awareness and accountability. These changes have made the accounting process more in-depth and lengthy for businesses, but in turn financial statements are more accurate. The Sarbanes-Oxely Act holds businesses to a heightened level of accountability for the accuracy of accounting records improving the integrity of the business (D.G. McDermott Associates, LLC.,
2013). References
D.G. McDermott Associates, LLC. (2013). How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession. Retrieved from http://www.dgm.com/information-center/sarbanes-oxley-information/how-the-sarbanes-oxley-act-of-2002-impacts-the-accounting-profession/
Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2010). Financial Accounting: Tools for business decision making (5th ed). Hoboken, NJ: John Wiley & Sons.
University of California Santa Cruz. (n.d.). Sarbanes-Oxley Act of 2002. Retrieved from https://www.google.com/url?q=http://ic.ucsc.edu/~shep/Sarbanes/Sarbanes-Oxley%2520Presentation.ppt&sa=U&ei=LPDyUYeeCMXeqQGT_4CABQ&ved=0CAcQFjAA&client=internal-uds-se&usg=AFQjCNGT058PqDPRDqpuBCJL9Hk6C6YwGw