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Adoption of the Sarbanes-Oxley Act of 2002 as an Important Piece of Legistion
Finance & Accounting
Pages 3 (753 words)
The purpose of this brief discussion is to describe the fundamentals of an effective accounting system, including the necessary internal control features for cash and accounts/notes receivable transactions.
The SOX was the state’s response to the corporate scandals of the early 2000s, namely Enron and WorldCom. Congress sought to restore public confidence in the financial reporting system through the enactment of SOX. Section 404, in particular, treats on the requisites of the internal control system that companies must abide by. This section requires the filing of an internal control report where management must: (1) acknowledge that it is responsible for establishing and maintaining an effective internal control structure and procedures in support of financial reporting; and (2) evaluate and provide a statement on the adequacy and effectiveness of the internal control structure and procedures the company has adopted for financial reporting. (Porter & Norton, 2011). The objectives of internal control are to ensure: (1) that assets are safeguarded and used for business purposes; (2) that business information is accurate; and (3) that employees and managers comply with laws and regulations (Warren, Reeve & Duchac, 2008, p. 306). ...
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