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Sarbanes-Oxley Act of 2002: Accounting Issues

Please complete the following questions:

1. What accounting issues does the Sarbanes-Oxley Act of 2002 address?
2. How do the act's provisions change the behavior of senior corporate executives and accounting professionals?
3. Do you think this is an effective solution or will it create additional paperwork? Explain.

Solution Preview

1. The Sarbanes Oxley Act of 2002 was created as a direct result of the accounting scandals that took place in 2001 and 2002. The scandals were so massive that we're still seeing the effects from corporate scandals like Enron and WorldCom. The act directly addressed the issue of corporate governance, and corporate responsibility. One of the main issues in the accounting scandals that took place was that the key executives claimed innocence (or some would say ignorance). The CEO and CFO claimed that they had no knowledge of the rampant fraud taking place in their companies, which was being committed primarily by other executives and company employees. The SOX Act of 2002 forces the CEO and CFO to both personally sign their names to the company's financial statements. The CEO and CFO can no longer claim that he or she didn't know that proper disclosures weren't being made in the notes to the financial statements, or that ...

Solution Summary

This response clearly outlines the reasoning for the creation of the Sarbanes-Oxley Act of 2002 and illustrates how this act changed the way accounting was practiced in the business world. This response is just under 600 words in length.

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