Running head: IMPACT OF UNETHICAL BEHAVIOR 1

Impact of Unethical Behavior

ACC291
February 21, 2012
IMPACT OF UNETHICAL BEHAVIOR 2


Impact of Unethical Behavior

The Sarbanes Oxley Act was passed as a result of plenty of corporate scandals. The
purpose of this act was to protect investors and to provide them with accurate and reliable
information, and to disclose all information that can affect an investors decision. It was passed
to restore the confidence of investors.
The Sarbanes Oxley Act has impacted financial statements in several ways. The act has
asked that independent firms should audit the financial statements in which positions of the
auditors should be rotated from time to time, so that fraud cannot be hidden by the same auditor
year after year.
Section 303 of the act requires senior management to certify the accuracy and reliability
of financial statements. The Sarbanes Oxley Act requires that the financial statements of the
company must be signed off by the CEO and CFO of the company. Executives will be held
responsible for any accounting irregularities by signing authentic documentation they are fully
aware of the accounting rules and regulations and that they will be held accountable for any
simple inept errors or deliberate fraud, reckless breach of fiduciary duty, blatant negligence,
scheming to defraud, and so on. The SOX act has made CEOs and CFOs more responsible,
thus, they (CEOs and CFOs) must certify that they have reviewed the financial statements of
the company and that the statements are true to the best of their knowledge.
Section 302 (management assessment of disclosure controls) requires disclosure of
material information to the Securities & Exchange Commission (SEC).
Section 401 (disclosures in periodic reports) of the Sarbanes Oxley Act has made it
mandatory for companies to disclose their off balance sheet financial arrangements unlike
IMPACT OF UNETHICAL BEHAVIOR 3


previous practices in which certain leases of assets could be left off the balance sheet with no
disclosure in the financial statements. Section 401 states that the publisher of the financial
statements is responsible for the accuracy and for the information presented in the financial
statements. They must apply GAAP principles correctly. Additionally, the SOX act also requires
management to prepare an internal control report with every financial report. This will ensure
that not only the financial statements are prepared accurately but adequate safeguards are in
place for the safety of financial data. To some degree, the SOX Act has increased investors
confidence within the parameters of financial reporting. Moving on, Section 409 (material event
reporting) requires all public companies to disclose all information pertaining to material
changes in their financial operations and/or condition on a regular basis (quarterly, annually, and
Regulation Fair Disclosure or Reg. FD). The key objective of this section is to ensure the safety
of investors from delayed reporting of material events. They must be presented in a way that
must be easy to understand.
In conclusion, the SOX Act has made an effective impact on financial statements and has
made them more reliable. Thus, the SOX Act has restored investors confidence in financial
statement(s) reporting.





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