Question

Internal Controls are extremely important with any accounting system, especially a computerized system. It is a huge part of creating and maintaining an accurate set of accounting records. I’m sure you all have heard of The Enron, WorldCom, Global Crossings, Tyco or Arthur Anderson scandals. These scandals cost their stockholders billions of dollars. Any company that trades stock publicly is required to file their financial statements and other important financial information with the SEC (The Securities Exchange Commission). Obviously, false information was filed from these companies and as a result, The Sarbanes Oxley Act of 2002 was passed into law.

Describe this act?

Discuss what it means for stockholders?

Explain the ramifications for accountants?

Provide some ethical solutions that would prevent employees from putting companies in this type of situation.

Answer 1

Sarbanes oxley act is a fedral act, which was introduced to protect the interest of shareholders, employees and public from account ting error, fraudulent financial practices.

Importance of sox act for stockholders :-

Since sarbanes oxley act requires filing of various documents with sec and require CFO to ensure transparency and accuracy or those financial statements thus it ensures an enhanced level of transparency for stockholders and they can have more confidence in the financial statements of an organisations and accordingly they can invest their funds without any tensions

Following are the ramifications for accountants due to sox act :-

1. Establishment of public company accounting oversight board which will oversee and investigate audit and auditors of publicly traded co. And sanction them for violation of law

2. Now auditor will report to and be overseen by audit committee of company instead of management.

3. It prohibit auidtor from rendering certain non audit services to audit client

4. Accounting firm will not be able to provide audit service to public company if one of the top officials of the company eg. CEO & CFO and employed by the firm and worked on company's audit during the previous year

Ethical solution :- CEO & CFO of the company in its quarterly and annual report must certify that they have reviewed the report, report does not contain any untrue statement and that financial statements presents all material aspects of the company.