Objective and Purpose of Sarbanes-Oxley Legislation

Sarbanes-Oxley Legislation: A response to Frauds at corporate level

Due to the significance and impact of the well-known financial statement frauds identified in 2001, starting with Enron and WorldCom, and the unacceptable level of restatements by publicly traded entities, the first immediate change to occur was the enactment of the Sarbanes-Oxley Act. This new legislation, often referred to as “Sarbox” or “SOX,” required independent review and reporting of a publicly traded entity’s control environment and internal control policies and procedures by the external auditors as well as personal certifications of every financial report by both the CEO and CFO.

What SOX requirements are? 

Although SOX has been around for several years, and many existing books and articles already cover SOX and its require- ments in significant details, SOX legislation sought to reduce the likelihood of fraud by making public company CEOs and CFOs directly account- able for their organization’s internal controls and financial dis- closures. Senior managers would also be subject to greater over- sight from more independent boards, internal audit committees, and external audits. Rather than looking on the new law as imposing onerous requirements,management should have view edit as an opportunity to take a fresh look at the company’s internal controls, to assess its risk of fraud, and to make changes where needed to reduce the organization’s overall exposure to loss.