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The Sarbanes-Oxley Act - Essay Example

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The paper "The Sarbanes-Oxley Act" tells us about a federal act passed in 2002 with bipartisan congressional support to improve auditing and public disclosure in response to several accounting scandals in the early-2000s…
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The Sarbanes-Oxley Act
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Extract of sample "The Sarbanes-Oxley Act"

The Sarbanes-Oxley Act (SOX) of 2002 was developed by the U.S. Congress in order to provide accountability to the financial markets after a series of financial scandals such as the Enron debacle created a lack of confidence in the markets from investors (Peavler, 2015). One of the biggest problems that was identified in the Enron scandal was the lack of internal controls to prevent shady executives from stealing money from corporations. As a direct consequence, the Sarbanes-Oxley Act created section 404 of the Act which dealt directly with the internal controls that corporations had to abide by in order to comply with the Act. Section 404 of the Sarbanes-Oxley Act states that all annual financial reports must include an internal control report stating that management is responsible for an adequate internal control structure and an assessment by management of the effectiveness of the control structure (Sarbanes-oxley-101, 2015).

The creation of SOX established new standards for internal controls that corporations must abide by, while at the same time ensuring that upper management became accountable for the actions of the company. The new internal control requirements must be monitored by upper management including the CEO and CFO who must personally sign the report making them liable in case these internal controls fail (Kmpg, 2004). This raises their accountability by 100% in comparison with the past. The act also requires a statement from the public company that audited the financial statement that it has issued an attestation report on management's assessment of the internal control of the company (Sec, 2008).

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