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From business accounting audit class: The Sarbanes - Oxley Act of 2002 was a response to...

From business accounting audit class:
The Sarbanes - Oxley Act of 2002 was a response to accountants' failures to sound the alarm about financial misconduct at Enron Corp and the subsequent demise of its auditor. Do you believe that the provisions of Sarbanes - Oxley Act are effective in preventing another Enron scandal?

Briefly explain at least 2 aspects.

Solutions

Expert Solution

Answer: Sarbanes Oxley Act 2002- This law was passed by U.S Congress to protect the investors from fraudulent practices and wrong financial reportings. It has imposed penalties on the people who broke the law.

Enron company hid its losses and showed good picture of the company in its financial statements. Investors had lost trust and confidence due to fraud of Enron, Tyco and Worldcom.

These are the reforms in Sarbanes Oxley Act-

  • Corporate responsibility
  • Criminal punishment
  • Accounting regulations
  • Full protection to investors

Section 404 of the SOX Act 2002 is for establishing internal control and reporting methods so as to make sure the adequacy of the controls.

Section 802 of SOX deals with falsification of records.

SOX 2002 provides strength to the control environment, it asks companies to have more reliable documentations and fair and true financial reporting. It makes sure the smooth functioning of IT, internal controls and other process.

ekkarill92 answered 1 year ago
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