Question

Name three provisions of Sarbanes Act of 2002 that you believe have the STRONGEST impact on making the auditor more likely to DETECT fraudulent acts. Explain why you selected these three.

Answer 1

Section 302 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 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.

Section 802 contains the three rules that affect record keeping. 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.