In 2002, you may remember hearing of the major corporate scandals involving companies like Enron and WorldCom, among others. Revelations that corporate executives filed misleading financial statements, and other discoveries involving inappropriate relationships between accounting firms and the companies they audited were a common feature in these scandals, and investors lost billions of dollars.
Following these scandals, the US government knew something needed to be done in order to better regulate the financial reporting and accounting of publicly traded companies. This was when the Sarbanes-Oxley Act was formed. Sarbanes-Oxley sought to enhance the integrity of corporate financial reporting and better regulate the accounting profession.
Under the requirements of this Act, public companies are obligated internally to perform extensive control tests; and externally, they are instructed to disclose any material off-balance sheet arrangements. Also, top managers have to personally certify the accuracy of the financial reports. The Sarbanes-Oxley Act also requires all board members to be evaluated to be financially literate and competent, which enhances the credibility of the company in attracting investors.
Even though this Act brings new challenges and some headaches to companies, it has contributed far more to corporate excellence through stronger internal controls for financial reporting, increased investor confidence and a greater appreciation for discipline, transparency and management responsibility.A successful Sarbanes-Oxley compliance implementation will fulfill therequirements of the Act by providing reliable reporting on archived records and by securing stored data from unauthorized access. Trusting a professional document storage company with your financial records and documentation is imperative to compliance.
There are 3 simple questions any company, CEO and CFO should be able to answer YES to when it comes to their accounting and financial statements to help ensure that they are compliant with this act…
- Is it accurate?
- Are you sure?
- Can you prove it?
The bottom line: The bottom line: Corporate scandals led to a new financial reporting act that now benefits companies AND investors.