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Finance & Accounting
Pages 3 (753 words)
The accounting profession relies on the ethical behavior of its members to ensure the reliability and accuracy of accounting information. During the early part of the 21st century there were a series of accounting scandals that devastated the financial world as people began to lose confidence in the financial information provided by public companies.
Due to the uncertainty and sudden lack of confidence by investors in the marketplace the government reacted and passed the Sarbanes-Oxley Act (SOX) of 2002. The Sarbanes-Oxley Act was created by Senator Paul Sarbanes and Representative Michael Oxley. The purpose of the Act was to regulate the accounting profession to ensure the validity of information, while at the same time raising investor confidence in the marketplace. The Sarbanes-Oxley Act is composed of 11 titles with the six most important titles being sections 302, 401, 404, 409, 802, 906 (Soxlaw, 2003). SOX brought major changes to the accounting profession. Public companies now had to implement managerial assessments of internal controls that must be published within the annual report. Another major breakthrough of SOX was that it raised the accountability of the executive management team. The top executives of companies including the CEO were forced to sign the financial statements of companies to ensure they are free of material error or fraud. Both the accountants and the top executives now face criminal penalties of up to 25 years in prison time if found guilty of financial fraud. The act also forced accountants to provide enhanced financial disclosure in regards to off-balance sheet liabilities, obligations, or transactions. ...
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