SARBANES-OXLEY ACT OF 2002(SOX)
Introduction to SOX:
Financial Analysis involves evaluation of business, budgets, projects etc to ensure stability, liquidity, and solvency and at last profitability of the business in presence of domestic and global macro-economic environment to determine suitability of investment. This evaluation is not completely objective and gets impacted by personal biases of the analysts which result into misleading outputs for investors. Many analysts get influenced by herd mentality and try to follow the presently accepted mood of the people.
Situation before …show more content…
The tough economic times have brought many transformations in the conduct of business with the most disturbing and erosive being the immorality in employee’s conducts and propensity for corruption. Consequently, as devised by public interest theory, government/regulators have enforced stringent regulations and inspection actions to be taken in case of misconduct, more noticeably after unethical scandals in financial reporting by Enron, WorldCom, Tyco …show more content…
SOX was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards. It was an act passed by U.S. Congress in 2002 with objective to protect investors from the possibility of fraudulent accounting activities by corporations.
The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important sections within these are often considered to be 302, 401, 404, 409, 802 and 906.
Key Provision of SOX:-The rules and enforcement policies outlined by the SOX Act amend or supplement existing legislation dealing with security regulations. The two key provisions of the Sarbanes-Oxley Act are:
1. Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement
2. Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal