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Effect of Unethical Behavior Article Analysis Essay

The Sarbanes-Oxley Act, passed in congress in 2002 is designed to protect investors from the potential of fraudulent corporate accounting activities. This act strictly mandates reform, aimed directly to prevent fraud and improve corporate financial disclosures (INVESTOPEDIA, 2012).

As a result of several confidence shaking investor accounting scandals that occurred during the late 90s which involved high profile corporations such as Enron, WorldCom and Tyco, a much required overhaul regarding financial statements and regulatory standards laid the foundation for the Sarbanes-Oxley Act. This act is making the accounting world more accessible to others for auditors to come in and help in checking the books. It will hold the executives and directors accountable for the internal controls of the company especially with the threat of imprisonment if the internal controls are not maintained.

The act ensures that a “checks and balance” internal auditing of the accounting cycle for the company and investors to keep their assets in check. The role of internal audits is to ensure that Institute of Internal Auditor’s Standards for the Professional Practice of Internal Auditing Standard 300 Scope of Work be followed. The scope of the internal audit should encompass the examination and evaluation of the adequacy and effectiveness of the organization’s system of internal control and the quality of performance in carrying out assigned responsibilities (M. Wood Company, 2012).

The internal audit standards are to review the dependability and integrity of financial and operating information and the resource being used to identify measure and classify those reports. The standard requires the system be reviewed to ensure compliance with those policies, plans, procedure, laws and regulations which may have a huge impact on operations and reporting. The standard is used to review the methods in place to safeguarding assets and verify that the assets protected exist. The final purpose of the standard is to appraise the economy and the efficiency with the means that are employed by a corporation.

It is important to note that policies and rules are also enforced to uphold the Sarbanes-Oxley Act. Sections 302, 401, 404 and 805 in particular address key requirements as it pertains to effecting financial statements. Section 302 requires senior managers to certify the accuracy of the reports along with establishing internal controls are set in place for the purpose of increasing report accuracy, ensuring honesty and ultimately providing financial protection for the investors.

Section 401 ensures that statements may not contain fraudulent information. Section 404 provides for the necessary rules for annual reporting as well as addresses management auditing structures. Lastly, section 805 provides the guidelines for federal sentencing relating to criminal fraud and obstruction of justice. (Hazels, Nov/Dec) A very important question that should be asked is how well main stream America understands the Sarbanes-Oxley Act of 2002 and how it has effected them? Another pressing area to uncover is how it has affected the US economy over the past ten years? Lastly, it would be interesting to understand how US companies interface globally with countries not held to the same standards.

References
Hazels, B. (Nov/Dec 2010). Eight Years After The Fact Is SOX Working? A Look At The Brooke Corporation. Journal of Business Case Studies, 6(6.6), 19-29. Invesotopedia. (2012). Sarbanes-Oxley Act Of 2002 – SOX. Retrieved from http://www.investopedia.com/terms/s/sarbanesoxleyact.asp#axzz2BCoqABsQ M. Wood Company. (2012, November 1). The role of Internal Audit in Complying with Sarbanes- Oxley. Retrieved from http://www.mwoodco.com/value/Internal_Audit_7-03.pdf

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