Sarbanes-Oxley Act Research Essay

The Importance of the Sarbanes-Oxley Act (SOX)

The US Congress passed the Sarbanes-Oxley Act (SOX) in 2002 as a measure to safeguard investors from corporate accounting fraud. In theory, SOX aims to prevent public companies from going through a crisis similar to what happened with Enron and WorldCom. The Act assigns responsibility and guarantees accountability for the accuracy of such reports in light of the numerous shortcomings at organizations that have problems with the accuracy and truthfulness of their financial statements.

Immediate Approval by CEO and CFO

One important SOX requirement is that the CEO and CFO must immediately approve the company’s annual and quarterly reports; otherwise, the company risks legal repercussions. (Milstead 12). A financial statement including the balance sheet, income, and cash flow statements should be independently audited and certified to provide a clear and unbiased picture of the company’s financial performance. Such statements can also expose fraud in addition to providing oversight for the business’s finance department. Accordingly, a certified financial report can inform on a company’s bankruptcy or indicate when a particular cost is higher than usual. In such a case, the company can take the necessary measures to investigate and correct the situation. Simply put, any discrepancies uncovered provide an opportunity for the audited firm to introduce better control measures.

Implementation Details and Risk Mitigation

Lastly, SOX does not explicitly outline the implementation details, and thus it is up to the company to determine how best to address the risk of its financial information. However, the company should base the risk mitigation measures on its size, the cost of remedy, and other resources required for implementation (Olifer et al. 196). Indeed implementing this provision of SOX is essential to ensuring the trustworthiness of a company’s financial statements.

Works Cited

Milstead, David. “Issue: Accounting Trends Short Article: Creative Accounting Makes a Comeback.” (2017).

Olifer, Dmitrij, et al. “Controls-based approach for evaluation of information security standards implementation costs.” Technological and Economic Development of Economy 23.1 (2017): 196-219.