Sarbanes Oxley is an act that was signed into the US law in 2002. The act was created to stop what happened to Enron and Worldcom happening to other companies. Both companies announced before bankrupty that they had been surviving on fraud deals for several years. At that time, companies didn’t need to report their finance records to the government.
The act simply makes sure that businesses are run correctly, if they are not being run legitimately, the act holds the bosses of the company responsible.
The act forces the Chief Executive Officers and the Chief Financial Officers to sign the books for the business. They are required to sign the records to say they don’t contain anything that’s false and that they match the companies earnings.
If the act is not followed or it turns out the records are incorrect, the Chief Officers can be punished severly.
As I said at the top of the post, you might not have to follow the act. You only need to abide by the act if your company is based in either the US, UK or Europe and they have listings on the US stock exchange. You would also have to follow the act if your company was a subsidiary of a US company and based in Europe.
The Sarbanes Oxley act can be a pain for some companies. Because the company needs to report every transaction that has taken place, even asset sales and purchases. This is where people have the problem because all the company’s fixed assets must before recorded.
The process of fixed asset accounting can be expensive and take time. If you try and do the job within your company, it can often take several months and result in incorrect listings. The easiest way to ensure you have recorded all your assets is by outsourcing the process to an asset management company.
Unfortunately, it’s still not a cheap process to do. However, many asset management companies do offer services that they can add to your assets to make it easier and cheaper to audit in the future. Many of the companies also offer Sarbanes Oxley compliance softwarewhich will make the job even easier for you.
Hopefully you will have learnt what the Sarbanes Oxley act it, whether you need to abide by it, and how you do it if you are required to. You probably won’t like having to do it, but you can blame Enron and Worldcom.
You must log in to post a comment.