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Unit 2 Discussion
- Course
- AC503
- Institution
- Purdue University
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Unit 2 DiscussionThe U.S. Congress passed the Sarbanes Oxley Act of 2002, also referred to as
the SOX Act or the Corporate Responsibility Act, in order to shield investors
against corporate financial reporting fraud. Large publicly listed corporations
that were implicated in financial scandals in the early 2000s included World
Dotcom, Tyco International, and Enron Corporation; these businesses had
manipulated financial statements and other instruments. SOX took on the
role of making corporate financial scandals public in order to prevent similar
actions. For the benefit of companies, the Act imposed stringent guidelines
and standards on accountants, auditors, and corporate authorities, requiring
highly examined bookkeeping.
1. What is the significance of Section 404?
a. The SOX Act's Section 404 addresses management's evaluation of
internal controls, guaranteeing effectiveness, accurate financial
reporting, and adherence to laws, rules, and legal processes. Areas
under management's complete authority and overall accountability for
the structure should be theirs. Management is directly liable for any
violations discovered by the Security Exchange Commission, and
appropriate action can be taken. The SOX statute allows for action if
management carelessness is discovered when accountability and
responsibility are not recognized.
2. Discuss the role of PCAOB?
a. The United States Congress established the nonprofit Public Company
Accounting Oversight Board (PCAOB) in 2002 with the goal of
controlling the audit sector and preventing accounting fraud. It consists
of four regular board members nominated by the Securities Exchange
Commission and affiliated with the government body, as well as a
chairperson. The PCAOB's primary responsibility is to make sure
businesses follow the law and don't engage in fraudulent behavior.
3. What other part of the Act did you find interesting?
a. Since management uncertainty may result in insider trading,
manipulation of the company or books of accounts, and bad
management, internal controls and financial reporting procedures are
crucial to ensuring adequate controls. The SOX Act is still criticized in
certain legal circles, who contend that because it is expensive to set up
and maintain the required internal controls, it may harm publicly listed
corporations. In accordance with IFRS and corporate guidelines,
financial reporting practices must be followed accurately. Inadequate
practices that result in fraud and scandal must also be properly
scrutinized.
Reference
The Costs & Benefits of Sarbanes-Oxley Section 404. (n.d.).
Default. https://pcaobus.org/news-events/speeches/speech-detail/the-costs-benefits-
of-sarbanes-oxley-section-404_126
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