The Sarbanes-Oxley Act and Internal Control

The Sarbanes-Oxley Act and Internal Control

Jonathan Bartlett

Strayer University

The Sarbanes-Oxley Act of 2002 was passed because of the Enron scandal that took place in 2001 and the attention it received from the media. Has is the norm Congress felt it had to do something and quick without researching the long term effects of such an important bill. “Congress rushed to pass the complicated Sarbanes-Oxley Act before the August recess” (Bumgardner, 2003).

Sarbanes-Oxley requires many new rules, controls, standards and implements auditing of financial information to prevent dishonest accounting and monetary practices from being used for individual gain. “Auditors must “test” the scope of a company’s internal control procedures and present its findings in its annual audit report” (Gerald, 2003). Sarbanes-Oxley also states that the CEO and CFO must officially verify both annual and quarterly reports issued by the company and they must be aware and make others aware that they are responsible for internal controls.

The act tells auditors specifically what to look at in a company to find fraud. “AICPA Practice Alert 98-3, auditors are instructed to give “special consideration” to a “lack of involvement by the accounting/finance department” (Gerald, 2003). Very specific written policies and procedures have put in place and include

- An outline of the organization structure

- An explanation of the company’s business model

- A summary of the revenue recognition rules

- A description of the key revenue recognition issues

- Procedures for archiving and cataloging pricing information

- A comprehensive list of prohibited practices (Gerald, 2003).

The requirements on companies for disclosure have strengthened also. “If a company uses pro forma numbers in its financial reports or press releases, it must also show what the financial results would be using generally accepted accounting...