Why Sarbanes-Oxley Act was Passed More About It
What is the Sarbanes-Oxley Act? The Sarbanes-Oxley Act is known as the Corporate and Auditing Accountability and Responsibility Act and the Public Company Accounting Reform and Investor Protection Act in the House of Representatives and the Senate, respectively. This was passed as United States federal law on July 30, 2002.
What is the Sarbanes-Oxley Act? This law aims to restore the trust and confidence of the investors brought about by accounting and corporate scandals by publicly listed companies or companies listed in the stock exchange such as WorldCom, Peregrine Systems, Adelphia, Tyco International and Enron.
What is the Sarbanes-Oxley Act? The federal law aims to improve the financial reporting of public accounting firms, management and public company boards in the United States. However, the law does not apply to non-listed private companies.
What is the Sarbanes-Oxley Act? In the effort to bring back the investors, the law aims to fortify corporate accounting controls.
What is the Sarbanes-Oxley Act? The creation of this law, created the Public Company Accounting Oversight Board (PCAOB). The role of PCAOB is to discipline, inspect, regulate and oversee external auditors of publicly listed companies. The other role of PCAOB is the assessment of internal control, corporate governance, improved financial statements disclosure and independence of auditor.
What is the Sarbanes-Oxley Act? The Sarbanes-Oxley Act is composed of eleven concepts that mandate and require the financial statements reporting.
What is the Sarbanes-Oxley Act or its eleven concepts? This law aims to bring back the trust of investors through credible financial statement presentations. The summary of the eleven titles are the following:
1. The creation of the Public Company Accounting Oversight Board (PCAOB).
2. The independence of the external auditors certifying the financial statements.
3. The financial statements should be certified by the Chief Financial Officer and the Chief Executive Officer; hence, the completeness and accuracy of the financial reports are their individual responsibility.
4. Part of the requirement of enhanced financial disclosures, material transactions after the balance sheet date requires disclosure.
5. Securities analysts' codes of conduct were defined which include the disclosure of known conflicts of interest.
6. The Securities and Exchange Commission (SEC) was given the authority to bar the practice of dealer, advisor and broker.
7. The SEC and Comptroller General are required to perform certain studies and make some reports.
8. Whistle-blowers are give protection while criminal penalties were added concerning acts of alteration, destruction or manipulation of corporate records.
9. It is now a criminal offense if corporate financial statements are not certified.
10. The income tax return should be signed by the Chief Executive Officer.
11. The SEC was given the right or power to freeze "unusual" transactions.
What is the Sarbanes-Oxley Act in general gives the presentation of financial statements more credibility as basis for investors and third party users.
For more useful information, please visit our website: THE KNOWLEDGE BASE, and look for the BUSINESS & FINANCE section.
Written by ja_schmidt
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