Question

Discusssion

Do some research on Sarbanes-Oxley, a regulation designed to prevent accounting fraud. In this discussion describe if you think Sarbanes-Oxley is adequate to prevent fraud. Use examples and cite fact and resources to support your opinion.

Answer 1

The Sarbanes-Oxley act, was passed by US Congress in July'2002. It mandates strict reforms to improve financial dislcosures from corporations to prevent accounting frauds. This act was passed in response of the public frauds which happened in corporations like Enron, Worldcom etc.

SOX was initially viewed as a burdensome excercise, business had limited knowledger of it and often had to spend lot of money for implementation. Over the time, SOX has been a more efficient and streamlined approach and it focuses on areas of real risk rather than catch all approach.

SOX has been adequate to prevent fraud based on the below statements-

1.SOX has changed corporate behaviour and have reduced the number of financial statements restatements from 765 in 2015 to 671 in 2016.

2. SOX has strengthen the roles and responsibilities of the Audit committee.

3. SOX guidelines protects whistleblowers from retaliatory actions and prevents potentially expensive lawsuits and government fines.

4. SOX has made corporations to internally perform extensive control tests and they need to disclose material off balance sheet arrangements.

5. SOX has mandated top management execcutives to personally certify the accuracy of the financial statements.

6. SOX requires board members to be financially literate and competent.

7. SOX imposes a harsher punishment for obstructing justice and securities fraud.

8. SOX established the "Public Company Accounting Oversight Board" which promulgates standards for public accountants, limits their conflict of interest.