Accounting Equation and Transactions

In many businesses, accounting tricks are used to influence financial statements however, in United States there is a Sarbanes-Oxley Act, which guards investors by maintaining the precision and trustworthiness of business disclosures made pursuant to the securities regulations, and for other functions. Sarbanes-Oxley Act means Senator Paul Sarbanes and Representative Michael Oxley, who outlined the Sarbanes-Oxley Act of 2002, which formed new values for business accountability as well as new punishment for acts of transgression. It transforms how business executives and boards must cooperate with one other and with the business auditors. It eradicates the justification of "I wasn't aware of financial issues" from CFOs and CEOs, holding them liable for the precision of financial reports. The Act denotes fresh financial coverage responsibilities, together with observance to new internal checks and procedures intended to make certain the legitimacy of their financial reports (West's Encyclopedia of American Law, 2008).

The Act necessitates all financial information to comprise in an internal control statement. This is intended to prove that not simply are the corporation’s financial information accurate, but the business has assurance in them since sufficient checks are in place to uphold financial statistics. End-year financial information must include an evaluation of the efficacy of the internal controls. The issuer's assessing firm is necessary to confirm to that appraisal. The US Sarbanes-Oxley Act was enacted after the experience of many business scandals. These businesses had distorted reporting of chosen financial dealings. For example, corporation like WorldCom, Tyco and Enron, misrepresented a range of dubious transactions, ensuing in enormous losses to stakeholders and a calamity in shareholder assurance. Sarbanes-Oxley seeks to improve business governance and reinforce business accountability by: honoring and reinforcing internal controls and balances in the businesses, organizing a range of new stages of checks and sign-off planned to, ascertain that financial statements exercises full revelation, and business management is done with full precision (West's Encyclopedia of American Law, 2008).

This act is valid to the entire public corporation in the U.S. and worldwide businesses that have listed debt securities or equity with the Securities and swap Commission and the accounting companies that offer auditing services to them. Non compliance consequences vary from the failure of exchange inventory, failure of D&O insurance to multimillion dollar charges and detention. It can cause absence of investor assurance. A CFO or CEO who presents an incorrect documentation is liable of to charges up to $1 million and up to ten year sentence for. If the incorrect certification was presented "willfully,” the charges can be raised up to $5 million and the imprisonment rose up to twenty years. The penalties for alteration, falsification of record or destruction in Federal investigations and bankruptcy or whoever creates a wrong entry in any documentation, with the aim to hamper, thwart, or manipulate the inquiry or appropriate organization of any matter in the jurisdiction of any sector or organization of the United States or any case filed under title 11, or in deliberation of any such case, shall be punished under this title, behind bars not more than 20 years, or both (Clemency, 2002).

Immediately the Sarbanes-Oxley Act was applied, public corporations were necessary to meet definite conditions or given punishments. For instance, the Act needs public corporations to form an audit commission. The audit team is a component of the board of directors. It has to encompass at least an accountant or anyone with financial knowledge. The Act also entails public corporations to employ outside business to execute financial audits on yearly. No business may utilize the similar firm for supplementary five years. Every corporation’s chief financial officer (CFO) or chief executive officer (CEO) is essential to verify that the corporation’s financial information are precise; the CFO or CEO face criminal punishments if they lie. The Act also declares it an offense to obliterate or conceal any manuscript in a government inquiry. In conclusion, the Act formed the Public corporation Accounting Oversight Board (PCAOB), which implements the Sarbanes-Oxley Act over public corporations (Clemency, 2002).

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