Paper type: Essay Pages: 3 (657 words)
The Sarbanes-Oxley Act of 2002 (SOX) was developed to prevent deceptive financial activities, and to provide financiers with more accurate monetary resources on corporations. Under SOX, companies are held responsible if they fail to keep the requirements that were set forth in the act. The act requires business to maintain acceptable internal control measures, provide responsible monetary reports, disclose regular reports, and establish rules for yearly reporting. (Hazels, 2010) These requirements are all part of the Typically Accepted Accounting Principles (GAAP). Corporations and accounting companies must have already been practicing these concepts to promote ethical behavior.
Nevertheless, the governing bodies charged with monitoring of business financial resources as well as their practices were outdated which necessitated the reforms laid out in the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act’s Result on Financial Statements
The Sarbanes-Oxley Act of 2002 has several sections that effect monetary statements, reporting of finances, and other requirements that are put on companies. “Section 302 offers business responsibility for financial reports. This Area needs that the “primary executive officer or officers and the principal financial officer or officers, or persons performing comparable functions, accredit in each yearly or quarterly report filed or submitted” that the signing officer examined the report, that based upon that officer’s knowledge, the declarations contain no fraudulent or misleading info, that the financial declarations and other monetary info fairly present all material aspects of the financial conditions and outcomes of operation and that the signing officers have actually disclosed any fraud, product or not, to auditors and the audit committee.
” (Hazels, 2010) There are other sections of SOX that handles establishing guidelines for corporations in regards to their yearly reporting and periodic reporting. Financial declarations and reporting are the backbone of communicating the monetary health of a company to financiers, creditors, and the public. This is why there is a high level of significance on the result the Sarbanes-Oxley Act has on monetary statements and reporting.
The Brooke Corporation
The Sarbanes-Oxley Act has been under much deliberation. In fact, many pose the question if SOX is even effective in creating ethical behavior and integrity in corporations. One example is to look at The Brooke Corporation, who have so far avoided having any SOX violations raised against them although they clearly violated several sections of the act. The corporation knowingly falsified and manipulated records, misappropriated funds, and did not have adequate internal control methods in place. “The BNY case may seem more obvious as one of the allegations clearly made is the case is that Brooke and its senior management knowingly manipulated financial statements. In addition, Mr. Orr could be liable in his own case if he did, indeed, misappropriate funds from the company as he would be signing financial statements knowing that they are false because he has taken funds from the company.” (Hazels, 2010) All of these situations led to unethical practices and behavior in the corporation’s accounting practices.
The situations that led to unethical practices and behavior could have been prevented if the company had the proper internal controls in place. The company did not create and foster a control environment. The management of the company did not establish a culture in which unethical behavior will not be tolerated, and they did not place a high value on integrity. This is illustrated by the fact there are allegations against Mr. Orr, the owner, for misappropriating funds. The company also did not properly use risk assessment, control activities, information and communication, and monitoring procedures. If the company had the proper checks and balances in place, then Mr. Orr would not have had all the different job titles ranging from owner, CFO, CEO, Chairman of the Board, and Director. They would have also had an auditor in place to review the financial statements and approve them. It is important that corporations maintain adequate internal control methods so that they prevent situations that lead to unethical practices and behavior in accounting.
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Unethical Practices and Behavior in Accounting. (2016, Mar 25). Retrieved from https://studymoose.com/unethical-practices-and-behavior-in-accounting-essay