1) In 2002 Wall Street was embroiled in a bear market as crorate greed and exces

Question

1) In 2002 Wall Street was embroiled in a bear market as crorate greed and excess was blamed for creating a huge stock market bubble that had burst in 2000. Congress responded by enacting The Sarbanes-Oxley Act of 2002.

a) How did Sections 302 and 404 address the public's concerns that corporate management be more accountable?

b) How about Section 906?

2) In 2010 the economy was mired in a deep economic recession as unemployment was high and capital for new business start ups was scarce. Many blamed government over regulation for the stifling of the economy and demanded government to stimulate economic growth.

How did Congressional amendments to Sarbannes Oxley in 2010 help loosen regulations on smaller publicly held companies?

Thanks for providing information!

Explanation / Answer

1a. Section 302 increases the corporate responsibility for financial reports. As per the section, statutory financial reports should include the following certifications - (i) the report does not have any material untrue statements. Further, the report should not have material omission and the report should not be considered misleading. (ii) the financial statements fairly presents the financial condition of the company (iii) list of all deficiencies in the internal controls. These certifications are meant to increases the corporate responsibility for financial reports.

Section 404 states that issuers of financial reports are required to mention the scope and adequacy of internal control structure and procedures for financial reporting in the annual reports. Thus, Section 404 ensures that the effectiveness of internal controls and procedures can be assessed.

1b. Section 906 is related to the criminal penalties that will be imposed when a misleading or fraudulent financial report is certified. The penalty can be upto $5 million in fines and 20 years in prison.

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