Even the best intentions sometimes have unexpected results. The Sarbanes-Oxley Act of 2002 was enacted in reaction to the Enron and WorldCom financial debacles, where poor internal controls resulted in dubious transactions being unchallenged. The result, as you know, was the collapse of several huge corporations, with many top executives facing considerable jail terms. Add in the document-shredding parties at Arthur Andersen, and in retrospect, SOX seems unavoidable.SOX was enacted in hopes of preventing something like this happening again. It not only holds management responsible for creating and maintaining internal controls tight enough to prevent or expose unauthorized or unusual transactions, but requires that publicly held corporations document how they are accomplishing these goals. There are numerous sections of the reform act, but the two that deal most directly with compliance are Section 302 and Section 404.
Section 302 underscores the corporate responsibility for financial reports. It requires that a statement be made by both the chief executive and chief financial officer of the company to accompany the audit report and other periodic reports certifying the appropriateness of the statements and disclosures. These statements that the reports fairly present the operations and financial condition of the issuer are in addition to any auditor's statement.
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