Question

Hi Max. SOX is definitely a fun an interesting topic! I remember when this “new” regulation turned the accounting world upside down. It’s hard to believe that was 16 years ago! Class, for those of you who currently work with SOX, which sections specifically have the greatest impact on your organization? Why? Brandy

Answer 1

Solution:-

About SOX:-

After a prolonged period of corporate scandals in the United States from 2000 to 2002, 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 act had a profound effect on corporate governance in the U.S. The Sarbanes-Oxley Act requires public companies to strengthen audit committees, perform internal controls tests, make directors and officers personally liable for accuracy of financial statements, and strengthen disclosure. The Sarbanes-Oxley Act also establishes stricter criminal penalties for securities fraud and changes how public accounting firms operate.

Impact:-

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. The audit committee members must be independent of management, and gain new responsibilities such as approving numerous audit and non-audit services, selecting and overseeing external auditors, and handling complaints regarding the management's accounting practices.

The Sarbanes-Oxley Act changes management's responsibility for financial reporting significantly. The act requires that top managers personally certify the accuracy of financial reports. If a top manager knowingly or willfully makes a false certification, he can face 10 to 20 years in prison. If the company is forced to make a required accounting restatementdue to management's misconduct, top managers can be required to give up their bonuses or profits made from selling the company's stock. If the director or officer is convicted of a securities law violation, he can be prohibited from serving in the same role at the public company.

SOX has definitely negatively affected the relationship with our audit firm. We m longer get straightforward accounting advice. Ifwe insist on accounting advice from our audit firm, it is typically given like a psychiatrist ...instead of giving us their view they turn around our qustion and ask what we think should be done. When we make our proposal, then they typically make non-definitive comments about it. In addition, SOX has dramatically increased the demand for accounting services, leading to higher costs and a 'we don't need you" attitude of the accounting firms toward smaller companeis.