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The Sarbanes-Oxley Act of 2002 has been enacted by the U.S Congress. The main purpose of the legislation is to provide protection to the investors against the fraudulent accounting operations carried on by companies. Strict reforms have been made mandatory by the legislation for enhancing financial disclosures and preventing the corporations from indulging in accounting fraud. The legislation had been enacted as a response to wide scale accounting malpractices dung the early 2000s when scandals such as Tyco International plc, WorldCom and Enron Corporation caused significant losses to the investors. These scandals shocked the confidence of the investors and thus a need for overhauling regulatory standards has been created.
According to section 302 of the CA the chief financial officer and the chief executive officer are directly responsible for the documentation, submission and accuracy of every financial report along with the internal control framework to the Securities Exchange Commission. The CEO and CFO would be held accountable if there is any error in relation to the financial reports.
The section requires all financial statements published by an organization to be correct and must not contain any statement which is not true or the admission of stating material information. The financial statements consist of all material information related to off balance sheet transactions, obligations and liabilities. The organizations have the responsibility of reporting all off balance transactions.
According to section 404 the organizations need to publish material information in the annual reports related to the adequacy and scope of procedures of financial reporting and internal control structures. Through these statements the effectiveness of such procedures and internal controls are required to be assessed. It is the duty of the registered accounting form to report on the assessment and effectiveness of internal control procedures and frameworks in relation to financial reporting.
According to the section it is the duty of the issuers to disclose before the public information related to material changes on an urgent basis with respect to their financial operations and conditions. The disclosure in relation to such changes must be made in such a way so that the terms can easily be understood by the supporters by qualitative and trendy information of graphical presentation as and where required.
The section had been provided through Title VIII of the act (Corporate and Criminal Fraud Accountability) and is related to the provisions of criminal penalties where documents are altered. Fines and penalties along with imprisonment up to 20 years have been imposed by the section for destroying, altering, concealing, mutilating or falsifying tangible objects, documents and records having the intention to impede, influence or obstruct a legal investigation. Fines and penalties along with imprisonment up to 10 years have also been imposed by the section on accountant who breaches requirement of maintain audit and review paper for a period of 5 years.
Through upon analyzing the background of the legislation as well as the provisions provided through it, it can be stated that the legislation is a good move for ensuring that the organization do not Indulge in ny fraud and misrepresentation in relation to account to cheat the investors.
Sarbanes-Oxley Act (2002)
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