The Importance Of Accounting Sarbanes Oxley Act
The economy of many countries depends on some major industries and a scandal in these can result in widespread discontent and loss. In an age where there are scandals in almost every sphere of commerce, the governments found it increasingly important to pass an act that could act to safeguard the interests of their citizens. One such act passed by U.S.A is the Accounting Sarbanes Oxley act. This act primarily deals with the accounting practices of a company which can affect the monetary state of many individuals. It is also referred to as the Public Company Accounting Reform and Investor Protection Act of 2002, and is generally called SOX by the common people.
This act is an initiative of the United States federal law to safeguard the interests of its citizens and curb any accounting scandals in any major company. This move was prompted due to the proliferation of scandals in the accounts of many big companies like Enron, WorldCom and Tyco International. These scandals had badly hurt the image of the accounting practices in these companies and as a result, the common man was losing trust in the system. The bill was introduced on 30th July, 2002 and was passed instantly with a vote of 423-3 by the senators.
The Accounting Sarbanes Oxley act has approved of the setting up of a body that governs and monitors the workings of firms dealing in public accounts. Consisting of 11 crucial articles for the benefit of the citizens rights, this act is a great step in the curbing of malpractices by companies in their accounts. The Public Company Accounting Oversight Board (PCAOB) set up by the passing of this act has the authority to monitor the audits of public accounting firms. It also sets up certain guidelines for the various independent auditors in the United States and keeps an eye on their working.
A key mandate of the Accounting Sarbanes Oxley act makes the top officials of a company responsible for the accounts of their firms. In such a scenario, a comprehensive study of the accounts would be done before executing them, thus eliminating any wrong practice at the root level itself. It also makes the firm accountable for its actions affecting the public domain. The Accounting Sarbanes Oxley act also gives guidelines for the practices a firm should adopt to ensure no scandal emerges due to neglect. It also sets the conditions under which an individual can lose his/her privileges as a broker, dealer or advisor if found using unfair practices. Accounting Sarbanes Oxley act also concerns itself with the enforcement of actions in cases where defaulters are found. Any fraud or manipulation of data can be termed as a criminal offense under the Accounting Sarbanes Oxley act. This will ensure that any firm does not indulge in such practices any dupes the people. Since the penalties have been increased in this act, the audit firms will now be concerned about their mode of working and provide only the legally suitable solutions to their clients.
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