Ethics and Financial Reporting

3003 Words13 Pages
Ethics and Financial Reporting

AMBA 630

Executive Summary
Reacting to a flood of accounting scandals and media outcry, the U.S. Congress passed the Sarbanes-Oxley Act (SOX) in July 2002. It is administered by the Securities and Exchange Commission (SEC). It sought to prevent future cases such as the one witnessed with Madoff Investment Securities, by improving the accuracy of public company financial statements. An important goal of SOX is to make these financials more meaningful (i.e., transparent) to their intended readers.
. It sets guidelines for the corporate board of directors, CEOs and CFOs, audit committees, internal audit function and internal control system. .
. Boards of directors are now expected to take a more
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It is unlawful to “influence, manipulate, coerce or mislead” any auditor engaged in the performance of an audit (Center for Audit Quality, 2009). Purposefully rendering any financial statements fraudulent is severely punished under SOX. Therefore, independent audit firms should be able to perform their duties without any oversight from their clients.
5. SOX section 404 on Internal Control
Section 404 of SOX pertains to management’s assessment of internal controls (Center for Audit Quality, 2009). It requires each annual report to contain an “internal control report”, which guarantees that the top management team effectively established and maintained an effective internal control structure and procedures for financial reporting. It should also contain an assessment (at the end of the fiscal year) stating that the structure and procedures were followed effectively. Moreover, it directs the SEC to make sure each issuer has adopted a code of ethics for its senior financial managers (responsible for the financial statements’ integrity and accuracy). It also required the SEC to emphasize prompt disclosure when there are any changes or alterations made to the issuer’s code of ethics (Form 8-K).
6. The accuracy of public company financial statements
CEOs and CFOs have both been under a lot of pressure to maintain the accuracy of financial statements. Section 302 of SOX explicitly states that they both need to prepare a statement certifying that the audit
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