The Sarbanes-Oxley Act of 2002 ( SOX ) was created to forestall deceitful fiscal activities. and to supply investors with more accurate fiscal resources on corporations. Under SOX. companies are held accountable if they fail to keep the demands that were set Forth in the act. The act requires companies to keep satisfactory internal control steps. supply responsible fiscal studies. unwrap periodic studies. and set up regulations for one-year coverage. ( Hazels. 2010 ) These demands are all portion of the Generally Accepted Accounting Principles ( GAAP ) . Corporations and accounting houses should hold already been practising these rules to continue ethical behaviour. However. the regulating organic structures charged with monitoring of corporate fundss every bit good as their patterns were outdated and that necessitated the reforms outlined in the Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act’s Effect on Financial Statements

The Sarbanes-Oxley Act of 2002 has several subdivisions that consequence fiscal statements. coverage of fundss. and other demands that are placed on organisations. “Section 302 gives corporate duty for fiscal studies. This Section requires that the “principal executive officer or officers and the chief fiscal officer or officers. or individuals executing similar maps. attest in each one-year or quarterly study filed or submitted” that the subscribing officer reviewed the study. that based on that officer’s cognition. the statements contain no fraudulent or deceptive information. that the fiscal statements and other fiscal information reasonably present all material facets of the fiscal conditions and consequences of operation and that the sign language officers have disclosed any fraud. stuff or non. to hearers and the audit commission. ” ( Hazels. 2010 ) There are other subdivisions of SOX that trades with set uping regulations for corporations in respects to their one-year coverage and periodic coverage. Fiscal statements and coverage are the anchor of pass oning the fiscal wellness of a company to investors. creditors. and the general populace. This is why there is a high degree of importance on the consequence the Sarbanes-Oxley Act has on fiscal statements and coverage.

The Brooke Corporation

The Sarbanes-Oxley Act has been under much deliberation. In fact. many pose the inquiry if SOX is even effectual in making ethical behaviour and unity in corporations. One illustration is to look at The Brooke Corporation. who have so far avoided holding any SOX misdemeanors raised against them although they clearly violated several subdivisions of the act. The corporation wittingly falsified and manipulated records. misappropriated financess. and did non hold equal internal control methods in topographic point. “The BNY instance may look more obvious as one of the allegations clearly made is the instance is that Brooke and its senior direction wittingly manipulated fiscal statements. In add-on. Mr. Orr could be apt in his ain instance if he did. so. embezzle financess from the company as he would be subscribing fiscal statements cognizing that they are false because he has taken financess from the company. ” ( Hazels. 2010 ) All of these state of affairss led to unethical patterns and behaviour in the corporation’s accounting patterns.

The state of affairss that led to unethical patterns and behaviour could hold been prevented if the company had the proper internal controls in topographic point. The company did non make and further a control environment. The direction of the company did non set up a civilization in which unethical behaviour will non be tolerated. and they did non put a high value on unity. This is illustrated by the fact there are allegations against Mr. Orr. the proprietor. for embezzling financess. The company besides did non decently usage hazard appraisal. control activities. information and communicating. and monitoring processs. If the company had the proper cheques and balances in topographic point. so Mr. Orr would non hold had all the different occupation rubrics runing from proprietor. CFO. CEO. Chairman of the Board. and Director. They would hold besides had an hearer in topographic point to reexamine the fiscal statements and O.K. them. It is of import that corporations maintain equal internal control methods so that they prevent state of affairss that lead to unethical patterns and behaviour in accounting.