Investigate in detail the provisions of the Sarbanes-Oxley Act of 2002 (SOX) fro

Question

Investigate in detail the provisions of the Sarbanes-Oxley Act of 2002 (SOX) from the Internet, periodicals, or academic journals.  Select one of the provisions of the Act, briefly describe it, and indicate why you think (or do not think) financial statements will be more trustworthy if company financial executives implement the provision of SOX you have chosen.  In the Title to your initial response posting, please name the provision (for example: Section 404) so your classmates can see which provision you have chosen to analyze.

Explanation / Answer

The Sarbanes-Oxley Act (SOX) came into force in July 2002 and introduced major changes to the regulation of corporate governance and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, and it set a number of non-negotiable deadlines for compliance.

SOX Section 404: Management Assessment of Internal Controls

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. Any shortcomings in these controls must also be reported. In addition, registered external auditors must attest to the accuracy of the company management's assertion that internal accounting controls are in place, operational and effective

Section 404 places a requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls.

Effect of implemenatation of provisions of Section 404:-
a) Improved quality of the internal control structure.

b) Improved quality of the company’s financial reporting.

c) improved ability of the company to prevent and detect fraud.

Conclusion:- The implemenatation of Provisions of section 404 will definitely enhance the quality of financial reporting and increase investor confidence.

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