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LUNA, Assignment 2

strategic business analysis

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Joyce Luna
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33 views3 pages

LUNA, Assignment 2

strategic business analysis

Uploaded by

Joyce Luna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Luna, Joyce Anne R.

BSA 701

1. What is Sarbanes Oxley Act?


The Sarbanes-Oxley Act (or SOX Act) is a U.S. federal law that aims to
protect investors by making corporate disclosures more reliable and accurate.
The Act was spurred by major accounting scandals, such as Enron and
WorldCom (today called MCI Inc.), that tricked investors and inflated stock
prices. Spearheaded by Senator Paul Sarbanes and Representative Michael
Oxley, the Act was signed into law by President George W. Bush on July 30,
2002.
Lawmakers created the legislation to help protect shareholders,
employees and the public from accounting errors and fraudulent financial
practices. Auditors, accountants and corporate officers became accountable for
the new set of rules. These rules were amendments and additions to several
laws enforced by the Securities and Exchange Commission (SEC), including the
Securities and Exchange Act of 1934 and the Investment Advisers Act of 1940.
The SEC enforces the Sarbanes-Oxley Act. The main areas that the Act is
focused on are:
 Increasing criminal punishment
 Accounting regulation
 New protections
 Corporate responsibility

2. What does the Sarbanes-Oxley Act require companies to do?


The law mandates strict reforms to improve financial disclosures from
corporations and prevent accounting fraud. It also covers issues such as auditor
independence, corporate governance, internal control assessment, and
enhanced financial disclosure.
3. What are the main provisions of the Sarbanes-Oxley Act?
The SOX Act consists of eleven elements (or sections). The following are the
most important sections of the Act:
Section 302
Financial reports and statements must certify that:
 The documents have been reviewed by signing officers and passed internal
controls within the last 90 days.
 The documents are free of untrue statements or misleading omissions.
 The documents truthfully represent the company’s financial health and
position.
 The documents must be accompanied by a list of all deficiencies or changes
in internal controls and information on any fraud involving company
employees.

Section 401
Financial statements are required to be accurate. Financial statements should
also represent any off-balance liabilities, transactions, or obligations.

Section 404
Companies must publish a detailed statement in their annual reports explaining
the structure of internal controls used. The information must also be made
available regarding the procedures used for financial reporting. The statement
should also assess the effectiveness of the internal controls and reporting
procedures.
The accounting firm auditing the statements must also assess the internal
controls and reporting procedures as part of the audit process.

Section 409
Companies are required to urgently disclose drastic changes in their financial
position or operations, including acquisitions, divestments, and major personnel
departures. The changes are to be presented in clear, unambiguous terms.

Section 802
Section 802 outlines the following penalties:
 Any company official found guilty of concealing, destroying, or altering
documents, with the intent to disrupt an investigation, could face up to 20
years in prison and applicable fines.
 Any accountant who knowingly aids company officials in destroying,
altering, or falsifying financial statements could face up to 10 years in
prison.

4. How it affects the US businesses until today?


Sarbanes – Oxley Act is enforced to protect investors by making corporate
disclosures more reliable and accurate. With this aim alone, it helps US businesses
until today to in a way that they are confident that that all of their transactions are
genuine and does not intend to fool them. It also helps them to keep their image and
reputation good and credible.
5. How it is related to business ethics/code of ethics?
It is related to business ethics or code of ethics in a way that they have the
same intention of being transparent with their disclosures. Transparency is a
significant ethics that a company must practice whether with its management or
employees for it helps all of them to work in peace while achieving their company
and personal objectives.
6. How it is related to business ethics/code of ethics?
Sarbanes – Oxley Act is related to strategic management for when a
company is planning for its strategic management, they need to consider the said
Act for non-compliance with this act is punishable. Companies must be aware of
this act not only because it a punishable law but also it can help them to be more
reliable and accurate which is good for their reputations.

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