Order Description;

Review the Sarbanes-Oxley Act. What other provisions could have been included in the Act to strengthen the Responsible Stewardship and Integrity of the accounting profession. And conversely, what existing provisions in the Act are unnecessary or over-regulate the profession?

Answer;

The Sarbanes-Oxley Act was enacted in 2002. It is a United States federal law that set new or advanced standards for all U.S. public company boards, public accounting firms and management. The Act was named after United States senator Paul Sarbanes and United States Representative Michael G. Oxley. According Sarbanes-Oxley Act, top management must personally certify the correctness of financial information because penalties for fraudulent financial activities are harsh and severe. The Act also increased the oversight duty of the independence of the outside auditors and the board of directors who review the accuracy of corporate financial statements. The U.S Securities and Exchange Commission administers the act, which sets deadlines for compliance and publishes rules when needed. Sarbanes-Oxley Act is aimed at improving accountability and corporate governance and all public companies must comply with its rules and regulations.

The Sarbanes-Oxley Act does not only affect the financial part of corporations but also Information and Technology departments charged with storing a corporation’s electronic records. The act outlines which business records should be stored and for how long but does not specify which business practices should be carried out. SOX states that all business records including electronic messages and records must be maintained for not less than five years. The breach of this rule attracts consequences like imprisonment or fines.

According to (Hamilton & Trautmann, 2008), the Sarbanes-Oxley Act is arranged into eleven titles. Sections 302, 401, 404, 409, 802 and 906 are considered as far as compliance is concerned. Section 302 emphasizes on Corporate Responsibility for Financial Reports. The regular financial reports should include certifications that the signing officers have reviewed the report, the report submitted contain no errors or untrue information. The financial statements and related information should factually present the financial condition. It should also contain a list of all shortcomings in the internal controls and information on any fraud that involves employees engaged with internal activities. No organizations should attempt to avoid the regulations at any time.

Section 401 pertains to disclosures in periodic reports. Therefore, financial statements published by issuers are required to be accurate and presented in a way that is free of incorrect statements. The commission is supposed to report on any off-balance transactions for transparent reporting and determine whether generally accepted accounting principals and other regulations yield to open and meaningful reporting by issuers. Section 404 relate to management assessment of internal controls. In this section, issuers are required to publish information in their own annual reports concerning the extent and relevancy of the internal control structure and procedures of financial reporting (Hamilton & Trautmann, 2008). The firm is also required to report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.

Section 409 relates to real time issuer disclosures. Issuers must disclose to the public any information on material changes in their financial operations or condition on an urgent basis. The disclosures to be presented should be easy to understand and supported by qualitative information of graphic representations. The next section is section 802 that pertains to Criminal Penalties for altering documents. Penalties of fines or up to twenty years imprisonment are imposed for destroying, concealing, altering, falsifying records or mutilating documents with the intentions of impeding, obstructing or influencing a legal investigation (Fletcher & Plette, 2008).

The section also imposes penalties of fines or imprisonment of up to ten years on any accountant who knowingly and willfully breaches the requirements of maintenance of all review papers or audit for a period of five years.

The Sarbanes-Oxley Act is not fully efficient and requires some provisions for improving the Stewardship and Integrity of the accounting profession. One of the provisions is that all financial professionals should fully acknowledge their affirmative duty to proactively promote ethical conduct in their organizations. The other provision is providing employees with means of giving concerns and actively promoting ethical behavior. Mechanisms should include employee orientation, written code of conduct and training. A helpline that employees can use to give compliance concerns without fear of victimization and procedures for voluntary disclosure of violations. Corporations should also restrict hiring of tax partners and engagement audit through adoption of policies (Fletcher & Plette, 2008)

Creating of a new oversight body for accounting profession whereby the Securities and Exchange Commission sponsor an independent body with members experienced in accounting and finance but independent of public accounting firms or other organizations. Disclosure of corporate governance practices. Public companies should provide a report of major corporate governance practices headed by independent directors. There should also be a periodic consideration of rotation of the audit committee chair approximately after every five years. The Act should also require continuing professional education for the audit committee members. There should also be modernization of financial reporting whereby there is development of best practices for Management Discussion and Analysis (MD&A), providing website access to crucial performance measures and implementing plain English financial reporting.

However, the Sarbanes-Oxley Act had some provisions that over-regulate the Act. Due to the competence in the auditing profession, auditors sell their services to clients and such undermine the appropriate state of mind for auditors making users of the auditing information less confident. The PCAOB chairperson annual speech has been the only public evaluation of the quality of performance of audit firms and only general comments are expressed rather than comprehensive statistics.

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