In: Accounting
The supplementary document/resource titled “SOX Act 101-Key Components”, references eight key implementation components of the SOX Act. Given what you know about why the Act was established in 2002, explain which of those eight sections you feel was most necessary in the effort to discourage fraudulent activities by organizations. Additionally, explain which is your favorite section.
SOX Section 302 - Corporate Responsibility for Financial Reports is most necessary in the effort to discourage fraudulent activities by organizations
The Sarbanes-Oxley Act changes management's responsibility for financial reporting significantly. The act requires that top managers personally certify the accuracy of financial reports. If a top manager knowingly or willfully makes a false certification, he can face between 10 to 20 years in prison. If the company is forced to make a required accounting restatement due to management's misconduct, top managers can be required to give up their bonuses or profits made from selling the company's stock. The burden of accuracy in internal control is shifted to top management and due to harsh punishments and serious consequences Section 302 becomes the most necessary.
Personally , My favourite section is SOX Section 806 - Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud . This is becuase employees are the pillars of any company. Management is involved in decision making but those decisions are need to be implemented by employees. Empowering employees in this way can help in reducing risk of material misstatements.