Question

CPA Interview Question

Get his or her take on the below concepts.

Has SOX done an adequate job of restoring investor confidences after the accounting scandals of the early 2000s?

Answer 1

Today's investors have confidence in the market today because of SOX. The act aimed at protecting the investors by enhancing the reliability and accuracy of corporate disclosures. It placed important emphasis on companies for the establishment on the assessment and reporting on its internal control system over financial reporting, and required auditors are required to do annually reporting on the effectiveness of that system of internal controls. The main motive is to have better internal controls resulting in effective financial reporting and more investor confidence in financial reports. The Act filtered accurate and full information about finances of the companies to ensure that the investors and creditors can effectively allocate capital within the free market system. Also SEC can prevent information asymmetry which means one party with superior information in a transaction has the ability to take benefit of the other party with inferior or less information. Thus in my opinion, SOX has done an appropriate job of restoring confidences of investor.