Professional Documents
Culture Documents
Managerial Finance
Managerial Finance
ID:00830220
LEVEL:300
PROGRAM: BBA(E-COMMERCE)
The Sarbanes-Oxley Act is an act that is aimed at protecting investors by making corporate
disclosures more accurate. It is a federal law that primarily sought to regulate financial reporting,
internal audits and other business practices a public trading company.
The legislation sought to both improve the reliability of public companies financing reporting as
well as restore investor confidence in the wake of high- profile cases of corporate crime. The as
arbanes act was names after its parties thus Senator Paul Sarbanes US, (D-Md) and Rep. Michael
G Oxley, (ROH-4) and was signed by the former U.S President George Walker Bush on July 30,
2002. The federal law makers enacted the Sarbanes -Oxley Act as a result of a major scandal
involving energy firm Enron Corp. Enron was then acknowledged as on of the most successful
and innovative company in the United States. Likewise, the telecommunications giant
WorldCom that tricked investors and inflated stock prices.
Major Provisions
The Sarbanes -Oxley Act is arranged into 11 sections. Below are the most relevant sections of
the Act:
Sections 302
The documents have been reviewed by signing officers and passed internal controls within the
last 90 days.
The documents truthfully represent the company’s financial heath and position.
The document must be accompanied by a list of all changes in the internal controls and
information on any fraudulent acts by the employee.
Section 401
This section requires that all financial statements should be accurate and should also represent
any off -balance liabilities, transactions, or obligations.
Sections 404
This requires that all companies must provide a public display of detailed statement in their
annual reports clearly stating the structure of the internal controls used. The procedure used for
financial reporting must also be made available
Section 409
In this section, companies are required to urgently disclose major changes in their financial
positions or operations including disinvestment, acquisitions and personnel departures.
Any company official found guilty of concealing, altering or falsifying, destroying documents
with the intent to disrupt an investigation could face 20 years in prison and applicable fines.
Any Accountant who aids the company officials in destroying, altering and falsifying financial
statements could face 10 years in prison.
After the Sarbanes-Oxley Act was implemented, financial crimes and accounting fraud became
less unlike before. Thus, most organizations avoided the attempt to overstate key figures such as
net income, revenues etc. This has greater impact on investors thus, investors benefited from
access to more reliable, accurate and complete information and were able to base their
investment analysis on more clear stated numbers
The Sarbanes -Oxley Act helped businesses improve their financial management by
strengthening the controls, standardizing processes, improving documentation and creating
stronger board oversight.
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