Question

GIVE "5" major changes to the accounting profession as a result of Sarbanes-Oxley.

NO HANDWRITING PLEASE

Answer 1

The Sarbanes-Oxley Act (SOX) was enacted in July 2002 to restore investors' confidence in the financial markets and close loopholes that allowed public companies to defraud investors.

The major changes to the accounting profession as a result of Sarbanes-Oxley are as follows:

1. One direct effect of the Sarbanes-Oxley Act on corporate governance is the strengthening of public companies' audit committees. The audit committee receives wide leverage in overseeing the top management's accounting decisions.
2. Changed the management's responsibility for financial reporting significantly. This act requires that top managers personally certify the accuracy of financial reports.
3. The act significantly strengthens the disclosure requirement. Public companies are required to disclose any material off-balance sheet arrangements. The company is also required to disclose any pro forma statements and how they would look under the generally accepted accounting principles (GAAP).
4. The Sarbanes-Oxley Act imposes harsher punishment for obstructing justice, securities fraud, mail fraud, and wire fraud.
5. The costliest part of the Sarbanes-Oxley Act is Section 404, which requires public companies to perform extensive internal control tests and include an internal control report with their annual audits. Testing and documenting manual and automated controls in financial reporting requires enormous effort and involvement of not only external accountants but also experienced IT personnel. The compliance cost is especially burdensome for companies that heavily rely on manual controls. The Sarbanes-Oxley Act has encouraged companies to make their financial reporting more efficient, centralized and automated.