Question

What significant reforms took place as a result of the Sarbanes-Oxley Act of 2002? Why did these reforms take place? Who did these reforms affect?

Regarding SOX: as a potential Public Accountant, what concerns do you have?

Answer 1

INTRODUCTION OF SARBANESSARBANES OXLEY ACT,2002(SOX)-

The U.S congress passed the SARBANES OXLEY ACT,2002 on 30 JULY, 2002 to protect the interest of investors from the fradulent accounting activities corporations. This act is also called CORPORATE RESPONSIBILITY ACT,2002. This act stated strict reforms to improve the financial disclosure from corporations and prevent from accounting fraud .

REASONS WHY DID THE SOX ACT, 2002 INTRODUCE-

This act was amended in reponse to the most of the accounting malpractice in the early 2000s. Some of the scandals are due to this act introduce are ENRON CORPORATION, TYCO. INTERNATIONAL PLC AND WORLDCOM ETC. Due to this scandals all the investors demanded for the improvement of Regulatory standards, accounting standards etc.

AFTER THIS SOX,2002 INTRODUCE AND FOCUSES ON THE FOLLOWING FOUR AREAS OR THE SOX ACT'S SIGNIFICANTS REFORMS FOCUS ON FOUR AREAS -

1) CORPORATE RESPONSIBILITY

2) INCREASED CRIMINAL PUNISHMENT

3) ACCOUNTING REGULATIONS

4) NEW PROTECTIONS

This act focus on this four areas which contains all the subjects which should be improve .

The three sections are key to the standards of SOX ACT,2002-

SECTION 302 Is an official order which requires senior management to certify the accuracy of financial statements.

SECTION 404 is a requirement that management and auditors establish INTERNAL CONTROLS and reporting methods on the adequacy of these controls as this requirement is costly for the corporation's because controls and reporting methods are expensive.

SECTION 802 contain three rules that affect record keeping. FIRST deals with destructive and falsification of records . SECOND rule strictly defines the retention period for storing records. And the THIRD rule outlines the specific business records that companies need to store , which could be electronically communicated.

This reforms are taken place as a result of SOX,2002.

REASONS WHY THESE REFORMS TAKE PLACE ARE AS FOLLOWS-

1) To save the interest of investors by fraudulent activities.

2) For the accuracy of financial informations.

3) Reporting methods and internal controls in corporations.

4) Rules for the record keeping.

These are the reasons why the reforms took place. And this reforms is really helpful for the reliable and accurate financial statements which stops the accounting scandals.

THESE REFORMS AFFECT THE AUDITORS, MANAGEMENT, ALL THE MEMBERS OF THE CORPORATIONS, INVESTORS ETC, WHO ARE CONNECTED WITH THE FINANCIAL STATEMENTS.

AS A POTENTIAL PUBLIC ACCOUNTANT , CONCERNS I HAVE ARE AS FOLLOWS-

1) First concern will be that no false reports and transactions are recorded.

2) Accounting standards must be followed.

3) All the financial information are accurate and reliable so that investors, board of directors etc who uses the financial informations should know the accurate and reliable, trust worthy information.

According to my opinion , these are some concerns that I have as a potential public accountant.