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Sarbanes-Oxley Act Of 2002 Summary And Analysis

696 Words3 Pages

Sarbanes-Oxley Act of 2002 (SOX) Before the establishment of SOX, there was no requirements or regulations regarding the reporting of internal controls. Prior to SOX, the only reason a company had to disclose any internal control deficiencies was if the company changed auditors, otherwise it was not required. Although, public companies did have the option to report on their effectiveness of internal controls voluntarily but very few companies’ did (Balsam, Jiang, Lu, 2014). Additionally, prior to SOX, auditors were only held responsible for financial reporting if their client’s company collapsed (Elder et al. 2009). However, that all changed after the Enron, WorldCom, and Tyco accounting scandals of 2000 and 2001. These major scandals helped to establish the SOX. …show more content…

SOX was created to help investors become more confident and comfortable with their investments. SOX was established as a corporate responsibility law that is applicable to all companies documented with the Securities and Exchange Commission (SEC). The SEC’s purpose is to increase the value of financial reporting (Mundy & Owen, 2013). Additionally, SOX’s goal was to advance the reliability and accuracy of financial reporting by employing regulations and requirements regarding internal control over financial reporting. SOX consists of 11 different sections, these sections call for upper management and auditors to arrange for assurances in relation to the strategy, application, use, testing, and assessment of controls, which relates to many features of financial reporting (Mundy & Owen, 2013). Of those 11 different SOX sections, two communicate precisely to internal control over financial reporting, those sections are 302 and

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