Question

How would the implementation of the Sarbanes Oxley-Act stop the fraud?

Answer 1

Solution. The Sarbanes Oxley-Act was prepared and incorporated in wake of fraud grievances and accounting scandals in July 2002 in US, also known as SOX or Sarbox. The implementation of the Act laid down following principles in order to ignore unwanted or unfavorable situations or fraud in future :

a)The Act provides rules and regulations as modified audit standards to be incorporated by the organizations in book-keeping.

b)Heavy penalties to be levied if any manipulative information is found during analysis of internal control test reports and annual audit reports.

c)It encompasses organization's management people assessment of internal control reports in order to strengthen transparency in the financial transaction reporting.

d)It emphasize on centralizing control by rotation of auditors every five year to avoid interest conflict and manipulation.

The above mention control measures were incorporated in order to improve and maintain financial reporting and disclosures and is administered by The U.S. Securities and Exchange Commission(SEC). Though, some relief are provided to non-profit organizations.