The key points of the Sarbanes–Oxley audit regulate corporate

Answer 1

The Sarbanes-Oxley Act (SOX), enacted in 2002 in response to major corporate and accounting scandals, established a range of regulations aimed primarily at enhancing corporate governance and accountability. Here are the key points related to the audit and corporate regulation aspects of Sarbanes-Oxley:

1. Internal Controls: SOX requires companies to implement and report on the effectiveness of internal controls over financial reporting. Section 404 mandates management to assess and report on the effectiveness of these controls, and external auditors must attest to this assessment.

2. Auditor Independence: The Act enhances auditor independence by imposing strict rules to prevent conflicts of interest. This includes prohibiting auditors from providing certain non-audit services (e.g., consulting) to their audit clients.

3. Creation of the PCAOB: The Public Company Accounting Oversight Board (PCAOB) was established to oversee the audits of public companies. It sets standards for audit practices and conducts inspections of audit firms to ensure compliance.

4. Enhanced Financial Disclosures: Companies are mandated to provide more comprehensive financial information, including off-balance-sheet transactions and the use of pro forma figures, to ensure transparency.

5. Enhanced Penalties for Fraud: SOX imposes stricter penalties for fraudulent financial activity, including increased prison time and fines for executives who engage in misconduct.

6. Whistleblower Protection: The Act provides protections for employees who report corporate fraud or violations of securities laws, encouraging transparency and accountability within organizations.

7. Certification of Financial Reports: Company executives, including the CEO and CFO, are required to personally certify the accuracy of financial statements and disclosures, making them directly accountable for the financial reporting process.

8. Timely Reporting: SOX mandates that public companies must disclose information regarding material changes in their financial condition or operations on a timely basis.

These regulations were designed to improve the accuracy and reliability of corporate disclosures and to restore public confidence in the financial reporting and auditing process after high-profile scandals like Enron and WorldCom.