Effect of the Sarbanes-Oxley Act of 2002 Essay

Published: 2020-02-18 01:42:45
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Category: Financial statements

Type of paper: Essay

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The Sarbanes-Oxley Act of 2002 was designed to help prevent any fraudulent information being displayed on any companys financial statement. The benefits of using falsified information would be that more people internally and externally will want to invest in the company. For example, a company financially is not doing well, but on paper shows that they are can sell their stocks for an increased amount from what it would be if they were not doing well. When this law was implemented, it requires that businesses get their financial statements certified by a certain person who is certified to do so.

This will help prevent any fraudulent information being used on a financial statement. One of the ways that companies tried to get around this act was to have their accounting firm certify the books; however, this was made illegal as well so that a third party comes in and certifies the books. Another conflict of interest that was shown when this act came into place was the relationship between a companys CEO and CFO with the auditors of the company the person who audits a company does not report to their firm they report to a board of directors for the company.

Having this act in place not only arises so many areas of conflict that a supervisor can only supervise a certain client for five years in an auditing company. This means after five years of a customer they need to be moved. Hooper C. (2010 July 9). This act to certify that a companys CEO and CFO are putting their names and freedom on the line stating that they companys financial statements are true.

There is a tremendous amount conflict of interest that occurs with this act not only between external users but internal users as well. The Sarbanes-Oxley Act of 2002 was created to help and fraudulent information being put on or in a companys financial statements. This protects the public from making falsified investments in companies as well as the government to make sure they get the money they are required to receive from taxes. This act overall protect companies, people, and the government financially. Hooper C. (2010 July 9).

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