How Sox Affected the Practice of Accounting?

How SOX Affected the Practice of Accounting

In wake of the accounting scandals over the past several years, the Sarbanes-Oxley Act (SOX) of 2002 affects the practice of accounting by protecting investors by providing the accurate and reliable disclosures made pursuant to the securities laws and by making it so that top management must individually certify the accuracy of the financial information. Another way that it affected the practice of accounting is that the penalties are much more severe for fraudulent financial activity. SOX also raised the way that outsiders can audit the accuracy of the business financial statements and elevated the role of the board of directors. The bill was created so that the public confidence in the nation's securities market would be improved after the scandals cost investors billions of dollars. The Sarbanes-Oxley Act just seemed to put all the different roles of those higher management positions in a way that everyone could follow and there would be no way to blame the wrong people. The Sarbanes-Oxley Act was named after the two men who sponsored it; United States Senator Paul Sarbanes and United States Representative Michael G. Oxley.

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Role of Internal Controls in Complying with SOX

The role of internal controls in complying with SOX is very focused in the financial technology and the objective to providing reliable financial information. The two main components of internal control are application software and the data itself; therefore they focus on the application security and the associated data integrity. Under the Sarbanes-Oxley Act top management must verify all internal controls of their companies. Explicitly, they are to acknowledge their roles in maintaining controls and procedures that pertain to financial reporting. Before the companies were mainly focused on the reporting function and now the focus has shifted to the reporting process. The companies know that the financial reporting will always remain important, but the transaction trails are required to ensure the editing of financial statements. So the critical elements to be addressed by internal control are the data-processing environment and the financial reporting applications.