Accounting Errors And Fraudulent Practices

1303 Words 6 Pages
In today’s society, there are many legal risks that could arise within an organization. Employees could embezzle money from the company, company data may be exposed, or a hacker could enter into the secure company network. All of these situations have legal risks associated to them and the legal risks would cost the company thousands of dollars, which could make the company go out of business. In order to reduce these legal risks, the Sarbanes-Oxley Act was implemented by Congress to help corporations remain accountable in terms of protecting their investors and the public from accounting errors and fraudulent practices within the company (Wilbanks, 2016). This act ensures that a company’s financial department is secure and everyone is …show more content…
One section of the Act, Section 302, it clearly states that the CEO and CFO must review the financial reports and ensure that the figures and accounting principles are correct and efficient (Johnson, 2009). This section makes the appropriate people truly look at the company numbers and sign off on them before they are sent to the company’s investors. If the CEO and/ or the CFO review the documents and notice that there are accounting errors and refuse to make the changes, then they are as much as fault as the people who committed the error. If accounting errors go unnoticed and the top management approves them, then they could be charges with serious penalties which are outlined in Section 906. Section 302 of the Act ensures that the right people will review the documents and identify areas of concern before the investors and stockholders receive the …show more content…
Risk management is a process that is implemented to try to mitigate and prevent risks from harming the success of the company. When accounting errors and fraudulent practices occur within an organization, then it will affect the overall success of an organization. If the accountant is hiding money or is making fake deposits, then it will look like the company is stable and secure. However, when they finally determine that the accountant was stealing from the company, there may be no way out expect to close the business because all the operating capital has been compromised. Also, if a company is relying on a specific program that generates their income and then an employee decides to tell the company’s competitor their program specifics, those actions would significantly hurt the company’s profit margin. When either of these examples arise within a company, the company should have strict procedures in place before the situation escalades. A risk management system would allow the company to think about these scenarios and have a plan in place to safe guard the company from losing profits. Therefore, it is important that the company understand the SOX Act and incorporate its law into their risk management plan so that the entire company fully understands how the company will react in these situations, but also the punishment that is handed down for

Related Documents