Week5

Accuracy

The accuracy required of financial reports is now the subject of federal law, and violations can lead to criminal penalties. Sarbanes-Oxley stipulates potential fines and imprisonment for executives who willfully disseminate false financial information. Section 807 of Sarbanes-Oxley details penalties for defrauding stockholders. It states that whoever knowingly attempts to defraud through means of “false or fraudulent pretenses, representations, or promises…shall be fined…or imprisoned not more than 25 years.”

Accountability

Chief financial officers are required to attach signed statements of certification verifying the contents of their financial reports. With names of specific individuals attached to these documents, the chances of willful obfuscation are reduced. Section 302 specifies that principal financial officers, or those acting in that function, must certify that required financial statements do not contain any “untrue statements of material facts” and that they “fairly present in all material respects the financial condition” of the company.

Sponsored Links

eBook Macroeconomics Text

Use instead of assigned text.Easier to read & understand. Also in print

www.amazon.com/dp/B00APGAKAE

Internal Controls

Subchapter IV, Enhanced Financial Controls, deals with required annual reports detailing the company’s internal controls. The reports must contain management’s assessment of the effectiveness of such controls at the end of each fiscal year. Additionally, the law requires that the accounting firms that issue the reports must “attest to, and report on, the assessment made by management.” That requirement provides an external viewpoint on management’s own assessment. An article from the Wharton School of the University of Pennsylvania states that management also benefits from these requirements as “this knowledge provides corporate leaders with a new lens through which they can evaluate their business.”

Transparency

Sarbanes-Oxley...