Even if managers aren’t actively filling out financial information, it’s important that they have a firm grasp on rules and standards for filling out financial information. Also, understanding financial information itself is critical for managers to make informed decisions. In this post, we will discuss the Sarbanes-Oxley Act and its implications on businesses and managers.
The Sarbanes-Oxley Act (also known as SOX) was passed by Congress in 2002 to try to reduce unethical corporate behavior. This act established accounting regulations and industry norms that most large businesses follow. Also as a result of this act, top management must certify the accuracy of financial information. Also, this act made penalties for fraud much more severe.
SOX established 5 major changes:
- It created a Public Company Accounting Oversight Board in order to provide auditing services to public companies.
- It established standards for external auditors in order to limit conflicts of interest.
- It mandated that senior executives within the company have individual responsibility for the accuracy of financial reports
- It enhanced full disclosure and made reporting requirements stronger for financial transactions (especially balance sheet transactions)
- Made penalties for frauds a lot stronger.
While not all companies may have to follow stringent requirements because of SOX, even small companies need to understand how important it is to have legal and ethical financial statements and financial reporting.
You can learn more about SOX and managerial accounting in our Accounting Tutorial.