Question

In: Accounting

Do you think the Sarbanes-Oxley Act will promote more ethical behavior from corporate officers and directors?

Do you think the Sarbanes-Oxley Act will promote more ethical behavior from corporate officers and directors?

Solutions

Expert Solution

Enron was an American energy company mainly engaged in production of energy, gas and pulp and paper. It claimed revenue of $111 Billions and it find that assets & Profits are inflated, profit generated due to transaction with related parties and Understatement of liabilities. Similarly Worldcom US second largest long distance Phone Company showed false financial growth and profitability to raise its share price revenue inflated by $ 2 Billion and expenditure of $ 7 billion has been capitalized these scandals resulted in decline of public trust in accounting and reporting particles.

The Sarbanes Oxley Act 2002 also known as the Public Company Accounting reform and Investor protection Act 2002 and commonly called as SOX or Sarbox. The Act establishes a new quasi public authority , the Public Company Accounting Oversight Board for overseeing, regulating ,inspection and disciplining accounting firms in their roles as auditors of public companies

Act required that

  1. Public company evaluate and disclose the effectiveness of their internal controls as they relate to financial reporting and that independent auditors for such companies attest to such disclosure.
  2. Certification of financial reports by chief executive officers and chief financial officers
  3. Ban on most personal loans to any executive officers or directors.
  4. Accelerated reporting of insider trading
  5. Document and test the Internal Control over financial Reporting
  6. Issue an annual assertion on the effectiveness of internal control over financial reporting

So we can say that the Sarbanes-Oxley Act will promote more ethical behavior from corporate officers and directors.


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