Question

Hi Elizabeth. You’ve taken a very valid position! I think that section 302 of SOX has definitely increased the awareness of executive management in terms of the importance of the role of accounting and appropriate financial reporting. Previously, some leaders tended to focus only on operations believing that accounting was just somewhat of a necessary evil. However, I think they now have a better understanding of the external financial reporting process. Class, do you think this has also given the executive leaders a greater appreciation for the accountants within the organization that crunch the numbers, prepare the reports, and write the disclosures? Why or why not?

Answer 1

Sarbanes-Oxley Act Section 302


This section is of course listed under Title III of the act, and pertains to 'Corporate Responsibility for Financial Reports'.

Based on the given summary of Section 302, it is very much important to understand the executive leaders a greater appreciation for the accountants within the organisation that crunch the numbers, prepare the reports and write the disclosures:

Periodic statutory financial reports are to include certifications that:

• • The signing officers have reviewed the report
  • The report does not contain any material untrue statements or material omission or be considered misleading
  • The financial statements and related information fairly present the financial condition and the results in all material respects
  • The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings
  • A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities
  • Any significant changes in internal controls or related factors that could have a negative impact on the internal controls

SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

(a) REGULATIONS REQUIRED. — The Commission shall, by rule, require, for each company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the principal executive officer or officers and the principal financial officer of officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted under either such section of such Act that —

(1) the signing officer has reviewed the report;

(2) based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

(3) based on such officer's knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report;

(4) the signing officers: (A) are responsible for establishing and maintaining internal controls; (B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared; (C) have evaluated the effectiveness of the issuer's internal controls as of a date within 90 days prior to the report; and (D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

(5) the signing officers have disclosed to the issuer's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function) — (A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer's ability to record, process, summarize, and report financial data and have identified for the issuer's auditors any material weaknesses in internal controls; and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and (6) the signing officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

(b) FOREIGN REINCORPORATIONS HAVE NO EFFECT. — Nothing in this section 302 shall be interpreted or applied in any way to allow any issuer to lessen the legal force of the statement required under this section 302, by an issuer having reincorporated or having engaged in any other transaction that resulted in the transfer of the corporate domicile or offices of the issuer from inside the United States to outside of the United States.