Question

Answer the following question in a short answer of 150-200 words; provide comprehensive information and examples if applicable, to support your answer. What is the Sarbanes-Oxley Act? Discuss the impact of the Sarbanes-Oxley Act on accounting practices.

Answer 1

Sarbanes Oxley Act or SOX act is a federal law passed by US Congress on 30th July 2002 . It was named after Senator Paul Sarbanes and representative Michael Oxley.

The Enron scandal prompted the introduction of Sarbanes Oxley Act.

It was introduced with a view to protect investors from errors and fraudulent accounting activities from corporations. In other words it reduces the possibility of corporate fraud.

It s intention was also to improve the accuracy and reliability of corporate disclosures by:

1.closing loopholes in accounting practices

2.To strengthen corporate governance rules

3.To increase the accountability and disclosure requirements of corporates including corporate executives and public accountants

4.Promoting transparancy in company reporting of financial activities to stakeholders

5.To impose penalty for corporate and executive frauds

6. To authorize the creation of the Public Company Accounting Oversight board to monitor corporate behavior,particularly in the area of accounting