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1. Name three provisions of Sarbanes Act of 2002 that you believe had the STRONGEST impact...

1. Name three provisions of Sarbanes Act of 2002 that you believe had the STRONGEST impact on making the fraudster reconsider a temptation to issue fraudulent reports. Explain why you selected these three.

2. Name three provisions of Sarbanes Act of 2002 that you believe had the STRONGEST impact on making the AUDITOR more likely to DETECT fraudulent acts. Explain why you selected these three.
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Answer #1

The Sarbanes-Oxley Act of 2002 is a complex piece of legislation. Three of its key provisions are commonly referred to by their section numbers: Section 302, Section 404, and Section 802.

Section 302 of the SOX Act of 2002 mandates that senior corporate officers personally certify in writing that the company's financial statements "comply with SEC disclosure requirements and fairly present in all material aspects the operations and financial condition of the issuer." Officers who sign off on financial statements that they know to be inaccurate are subject to criminal penalties, including prison terms.

Section 404 of the SOX Act of 2002 requires that management and auditors establish internal controls and reporting methods to ensure the adequacy of those controls. Some critics of the law have complained that the requirements in Section 404 can have a negative impact on publicly traded companies because it's often expensive to establish and maintain the necessary internal controls.The costliest part of the Sarbanes-Oxley Act is Section 404, which requires public companies to perform extensive internal control tests and include an internal control report with their annual audits. Testing and documenting manual and automated controls in financial reporting requires enormous effort and involvement of not only external accountants but also experienced IT personnel. The compliance cost is especially burdensome for companies that heavily rely on manual controls.

Section 802 of the SOX Act of 2002 contains the three rules that affect recordkeeping. The first deals with destruction and falsification of records. The second strictly defines the retention period for storing records. The third rule outlines the specific business records that companies need to store, which includes electronic communications.

One direct effect of the Sarbanes-Oxley Act on corporate governance is the strengthening of public companies' audit committees. It helps in the audit committee receives wide leverage in overseeing the top management's accounting decisions. The audit committee, a subset of the board of directors consisting of non-management members, gained new responsibilities, such as approving numerous audit and non-audit services, selecting and overseeing external auditors, and handling complaints regarding the management's accounting practices.Pra Sarbanes-Oxley Act imposes harsher punishment for obstructing justice, securities fraud, mail fraud, and wire fraud. The maximum sentence term for securities fraud has increased to 25 years, and the maximum prison time for the obstruction of justice to 20 years. The act increased the maximum penalties for mail and wire fraud from five to 20 years of prison time. Also, the Sarbanes-Oxley Act significantly increases fines for public companies committing the same offense.The Sarbanes-Oxley Act significantly strengthens the disclosure requirement. Public companies are required to disclose any material off-balance sheet arrangements, such as operating leases and special purposes entities. The company is also required to disclose any pro forma statements and how they would look under the generally accepted accounting principles (GAAP). Insiders must report their stock transactions to the Securities and Exchange Commission (SEC) within two business days as well.The Sarbanes-Oxley Act imposes harsher punishment for obstructing justice, securities fraud, mail fraud, and wire fraud. The maximum sentence term for securities fraud has increased to 25 years, and the maximum prison time for the obstruction of justice to 20 years. The act increased the maximum penalties for mail and wire fraud from five to 20 years of prison time. Also, the Sarbanes-Oxley Act significantly increases fines for public companies committing the same offense.

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