IndexProvisions Affecting Financial ReportingAccounting Standards and Oversight: Reporting Timing Standards Accountability Standards Conflict and Independence Standards Documentation Standards Against the backdrop of accounting fraud and high-profile accounting errors, Sarbanes – Oxley Act (SOX) was introduced in 2002 with the intended goal of making corporate accounting more transparent. The Security Exchange Commission (SEC) was given responsibility for enforcement and a new oversight body, the Public Company Accounting Oversight Board (PCAOB), was formed to implement the law's various provisions. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Provisions Affecting Financial Reporting As these provisions fall under various provisions such as Section 302 - Disclosure of Controls, Section 401 - Disclosures in Periodic Reports (Off- Financial Statement Items), Item 402 - Evaluation of Internal Control and other. So, for simplicity we can break it down into the following to understand the impact on financial reporting: Accounting Standards and Oversight Reporting Timing Standards Accountability Standards Conflict and Independence Standards, Document Standards Accounting Standards and Oversight: Public Company Accounting Oversight Board (PCAOB ): The law led to the formation of the PCAOB, composed of a five-member independent board of directors. Their duties are to: register public accounting firms establish labor, ethics, independence and other standards for these firms conduct compliance audits of such firms take initiatives to improve the quality of audit services Standards: SOX requires firms to use generally accepted accounting principles (GAAP) in reporting their financial statements to shareholders and the Financial Accounting Standards Board (FASB) will set the official standards. Disclosure: All off-balance sheet transactions such as operating leases and other relationships with unconsolidated entities must be disclosed in a separate section of the notes. Internal Controls: Requires companies to conduct an assessment of the effectiveness of the organization's internal controls and provide a statement identifying the framework used by management to evaluate the effectiveness of internal controls. Reporting Timing Standards As per the act, all material changes in financial conditions or operations must be disclosed in real time, for example all designated securities transactions carried out by directors, officers and 10% shareholders must disclose the transactions on designated securities within two business days. Accountability Standards The company's CEO and CFO must certify the accuracy and fairness of the audited financial statements. A willful violation in this case will result in a fine of up to $5 million and 20 years in prison. The CEO and CFO must also certify that any significant deficiencies in internal controls, fraud, etc. have been communicated to the audit committee and auditors. Conflict and Independence Standards Public Accounting Firm: A registered accounting firm is prohibited from providing non-audit services (listed ) to an audit client coexisting with the audit. This aimed to minimize possible conflicts of interest and compromises of integrity in the audit. The Audit Committee: The law requires the establishment of an independent audit committee that helps improve governance by separating oversight functions from management. Keep in mind: This is just an example. Get a personalized document from us now.