Sarbanes-Oxley Act on Internal Control
The Sarbanes-Oxley Act was enacted in July 2002 and was known as the Public Company Accounting Reform and Investors Protection Act. It is commonly referred to as SOX or Sarbox and it was a reaction to some major scandals in the corporate and accounting fields. The scandals are known to affect the Tyco International, Enron, Peregrine Systems, Adelphia and WorldCom. These scandals are known to cost investors large sums of money especially when the share prices of the companies that are affected collapse or shake public confidence in the security markets of the nation. (U.S. Security Exchange Commission, 2003)
The main reasons as to why the SOX, as it is commonly referred were created are to prevent fraud and tighten internal control. There happen to be a number of provisions that are aimed at tightening internal control such as greater transparency and rotation of auditors. The Act requires that external auditors and management to report on adequacy of the internal control of the company over what is referred to as financial reporting. (U.S. Security Exchange Commission, 2003)
Under section 404 of this Act, there is a requirement to the management of all companies produce what the act refers to as an internal control report every year. This is report is supposed to affirm the managements responsibility for the establishment and subsequent maintenance of an adequate internal control procedures and structures necessary for financial reporting. It is due to this that every company in the whole of United States must adopt an internal control framework for instance the one described in COSO. This can also be termed as the relationship between the internal control and the Sarbanes-Oxley Act of 2002. The act is supposed to strengthen the internal control measures and therefore prevent an organization from collapsing or fraud. (U.S. Security Exchange Commission, 2003)
The main reasons as to why the SOX, as it is commonly referred were created are to prevent fraud and tighten internal control. There happen to be a number of provisions that are aimed at tightening internal control such as greater transparency and rotation of auditors. The Act requires that external auditors and management to report on adequacy of the internal control of the company over what is referred to as financial reporting. (U.S. Security Exchange Commission, 2003)
Under section 404 of this Act, there is a requirement to the management of all companies produce what the act refers to as an internal control report every year. This is report is supposed to affirm the managements responsibility for the establishment and subsequent maintenance of an adequate internal control procedures and structures necessary for financial reporting. It is due to this that every company in the whole of United States must adopt an internal control framework for instance the one described in COSO. This can also be termed as the relationship between the internal control and the Sarbanes-Oxley Act of 2002. The act is supposed to strengthen the internal control measures and therefore prevent an organization from collapsing or fraud. (U.S. Security Exchange Commission, 2003)
