Question

what is the Sarbanes-Oxley Act? Specifically, what does it address in financial reporting and auditing that was lacking prior? Secondly, while it may seems obvious - why is it important to understand foreign regulations? What are some of the concerns that business managers face?

Answer 1

The Sarbanes-Oxley Act was passed in 2002 in the response of many financial scandals in early 2000s in many companies like Enron, WorldCom and Tyco. Those scandals had disappointed the investors’ and reduced their confidence so this act was necessary to rebuild the investor’s confidence in the market. After that the auditing of publicly traded companies is regulated by the US federal government and independent auditors should be hired to review the accounting practices followed by the companies.

To address the issues related to financial reporting and auditing; the Sarbanes-Oxley Act’s section 404 fixed the responsibility of financial mangers through management assessment of internal controls system where companies have to disclose the details about their internal accounting controls and procedures followed for financial reporting and that should be certify by the executives of the company. It is important to understand foreign regulations because many companies are doing business in many countries and the business concerns and regulations are interlinked. Although many countries have similar regulation like Sarbanes-Oxley Act but detail understating for business managers are crucial.