Introduction Financial reporting has changed a great deal over the past fourteen years. Many companies have went out of business for the most significant reason; unethical behavior in the work place. The Sarbanes-Oxley Act of 2002 was created to enforce financial reporting regulations and the punishments for non-cooperation. Before 2002, the regulations for financial reporting were less severe than they are presently. Companies weren't as worried about being under the radar if they decided to engage in fraudulent financial practices. There has been many impacts of the Sarbanes-Oxley Act on corporate financial reporting. The Sarbanes-Oxley Act The Sarbanes-Oxley Act introduced the strict regulations on corporate financial reporting. Sarbanes-Oxley
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There are two sections that influence internal control the most which are Sections 302 and 404. Section 302, corporate responsibility for financial reports, is more of a realistic application of the internal controls. For this section, management of a company must establish and maintain internal controls, design internal controls to guarantee that material information which relates to the issue and its subsidiaries is communicated to the officers with the entities; evaluate the internal controls’ efficiency within ninety days prior to the report, and present their conclusions in the report concerning the effectiveness of the internal controls based on the evaluation. Section 404, or management assessment of internal controls, requires each annual report to contain a report on internal controls and their effectiveness within the company. These sections transformed the past reporting standards and now demand management to present an analysis of the design and efficiency of firms’ internal controls. One of the reasons a company has internal controls is to stop fraud. Without the existence of internal controls, companies are more vulnerable to fraudulent …show more content…
Even though these improvements have resulted with some costs, the benefits have outweighed the costs. Those companies that have put in the effort to make sacrifices to improve their financial reporting methods have seen excellent results. The full reporting standards have become more strict since the establishment of the Sarbanes-Oxley Act, yet the decrease in flexibility adds a sense of structure for companies. While these changes have enforced adjustments, throughout these last fourteen years the U.S. economy has been able to dodge many problems like Enron. Those companies that could not or would not accommodate are no longer present. The Sarbanes-Oxley Act is no perfect solution to any problem that will come into the economy but it does provide guidelines that can prevent more mistakes. The future effects of Sarbanes-Oxley Act has yet to be seen, but the evidence from the past fourteen years is very positive. Only time will tell what transitions will come to be in the future of financial
There are two sections that influence internal control the most which are Sections 302 and 404. Section 302, corporate responsibility for financial reports, is more of a realistic application of the internal controls. For this section, management of a company must establish and maintain internal controls, design internal controls to guarantee that material information which relates to the issue and its subsidiaries is communicated to the officers with the entities; evaluate the internal controls’ efficiency within ninety days prior to the report, and present their conclusions in the report concerning the effectiveness of the internal controls based on the evaluation. Section 404, or management assessment of internal controls, requires each annual report to contain a report on internal controls and their effectiveness within the company. These sections transformed the past reporting standards and now demand management to present an analysis of the design and efficiency of firms’ internal controls. One of the reasons a company has internal controls is to stop fraud. Without the existence of internal controls, companies are more vulnerable to fraudulent …show more content…
Even though these improvements have resulted with some costs, the benefits have outweighed the costs. Those companies that have put in the effort to make sacrifices to improve their financial reporting methods have seen excellent results. The full reporting standards have become more strict since the establishment of the Sarbanes-Oxley Act, yet the decrease in flexibility adds a sense of structure for companies. While these changes have enforced adjustments, throughout these last fourteen years the U.S. economy has been able to dodge many problems like Enron. Those companies that could not or would not accommodate are no longer present. The Sarbanes-Oxley Act is no perfect solution to any problem that will come into the economy but it does provide guidelines that can prevent more mistakes. The future effects of Sarbanes-Oxley Act has yet to be seen, but the evidence from the past fourteen years is very positive. Only time will tell what transitions will come to be in the future of financial