The Sarbanes and Oxley Act - Essay Example

It also called for public company accounting reform and investor protection act 2002. When the accounting scandals of reputed companies are made public, the companies stand to lose the people's trust. A quasi-public agency named the public company accounting oversight board (PCAOB) was established to prevent companies from getting into fraudulent activities. It also helped to conduct proper investigations in this regard. According to this act, public companies must disclose their internal account practices to make public their effectiveness.

The auditor's independence is to be maintained, and any listed public company should have an independent audit committee to look over the relations between the auditor and the company. This enabled smoother interactions between the auditors and the companies. As more people are involved in the auditing process, any serious disagreement stood the chance of becoming public. The loans taken by directors and executive officers are restricted to prevent the public money from being misused.

Previously they used to make money in the form of unsecured loans. Public money was at stake as if any loss was reported, recovery of these loans would be difficult. Misuse of public money by the directors could be checked in this way. The reporting of insider trading was made compulsory to protect the interests of shareholders. Insider trading was reduced largely by imposing fines and a sentence of imprisonment for executives involved in that practice. Along with protecting the investments, provisions were also made to protect the employee's interests.

The most critical section in the law which discloses financial statements responsible is section 404. These enabled employees and whistleblowers to file complaints regarding the harassment and dismissals to get quick responses. The auditor's attestation was made mandatory, making companies more responsible and accountable in their account practices and disclosures. The auditor, who attests, will be made responsible for any fraudulent disclosures in the statements, even in future. This makes the financial disclosures accountable.

Sarbanes-Oxley Acts relationship and affect on Not-for-profit entities: The provision of restriction of loans to the directors of non-profit organisations, which Government and other private organisations fund, can control the misuse of the money allotted for social welfare the common good. This section compels the management to establish internal controls to make themselves accountable for the details revealed in the financial statements. The companies have to certify that the internal controls were efficient and trouble-free.