The Sarbanes Oxley Act ( Sox )

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Fraudulent financial reporting has gained substantial attention from the public after the scandals of many high profile companies in the 21st century. Periodic cases of financial statement fraud raise concerns about the credibility of financial reports and are as a result of problem in the capital markets, a dropping of shareholder value, and, the bankruptcy of the company. Thus, to respond to the public pressure over acts of corporate offense, the Sarbanes-Oxley Act (SOX) was enacted in 2002. SOX proposed major changes to the regulation of corporate governance and financial reporting by improving the accuracy and reliability of company disclosure. This essay will explain the effects of SOX on the financial statement fraud in an organization. Situation Prior to the legislation of Sarbanes-Oxley Act, the regulations of financial statement were much more lax than current. There were only the rules declared by the SEC, the 1933 and 1934 securities laws (Carol, J., 2005). These laws required public companies to disclose the corporate information and have an independent party who reviewed and assured the company’s financial report. The public trusted the financial reports which were audited by the auditors and used in making investment decision. However, no one gave precedence to the accuracy and transparency of the financial information. Hence, many companies’ management took advantage of the lax reporting rules by manipulating the financial statement to make financial

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