How Does The Sarbanes Oxley Act Relate To Internal Controls?

722 words - 3 pages

How Does the Sarbanes Oxley Act Relate to Internal Controls?

Strayer University

December 3, 2010

In order to have a full understanding of what Internal Controls are and how they relate to The Sarbanes Oxley Act, I decided to do a little research on Internal Controls, first. (Horngren, Harrison, and Oliver, 2009, pp. 380-384), defines Internal Controls as an organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policy, promote operational efficiency, and ensure accurate and reliable accounting records. A business can achieve its internal control objectives by applying five components. Monitoring of ...view middle of the document...

There were many concerns from the public that revolved around the Enron and WorldCom scandals. These scandals shook the stock market and caused many people to lose their jobs and 401k investments. The Sarbanes-Oxley Act revamped corporate governance in the United States and affected the accounting profession (Horngren, Harrison, and Oliver, 2009, p.380). The Sarbranes-Oxley Act made the following provisions:

1. Public companies must issue an internal control report, and an outside auditor must evaluate the client’s internal controls.

2. A new body, the Public Company Accounting Oversight Board, oversees the work of auditors of public companies.

3. Accounting firms may not audit a public client and also provide certain consulting services for the same client.

4. Stiff penalties await violators – 25 years in prison for securities fraud and 20 years for an executive making false sworn statements.

These new provisions are guaranteed to make a person think twice before becoming involved in financial scandals. Corporate America still finds The Sarbanes-Oxley Act compliance requirements to be burdensome, vague, and frustrating, as John Montana reported in The Information Management Journal on December 01, 2007. The Sarbanes Oxley-Act makes it difficult for Internal Controls to not be...

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