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Impact of the Sarbanes Oxley Act on Accounting - Term Paper Example
Finance & Accounting
Pages 3 (753 words)
Impacts of Sarbanes Oxley Act on Accounting Impacts of Sarbanes Oxley Act on Accounting Introduction/Issue Although auditing is the most effective tactic to get a true and fair view of the state of affairs of a company, certain audit issues such asset valuation, asset ownership, and manager representation challenge the scope of auditing…
Under such a situation, the auditor is at fault. However, people normally neglect to provide supporting evidence that justifies the claims. In this situation, an official auditor will either visit the person at fault or the person will be allowed specific number of days to produce reasonable evidence. However, “new legislation in the United States known as the Sarbanes-Oxley Act has been introduced recently to ensure fair reporting of asset valuation” (Omnix Asset Management). Asset valuation before and after Sarbanes-Oxley Act Prior to the introduction of Sarbanes-Oxley Act, most firms had practiced unfair asset valuation. Asset valuation issues are mainly associated with acquisitions. Determining the cost of acquisition is a major difficulty that arises when valuing an acquisition. Normally, the amount paid to acquire the company reflects acquisition cost. However, valuation of acquisition cost would be more complicated if acquisition is made on the strength of stock rather than cash. The situation becomes worse if final price is contingent on the assets received or on the acquired entry’s performance. It would be a cumbersome task for the auditor to assess the likelihood of acquired entity in meeting performance objectives. ...