The Sarbanes Oxley Act Of 2002 Essay

The Sarbanes Oxley Act Of 2002 Essay

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The field of financial reporting tends to bore many people, until it makes the front page in a typically catastrophic fashion due to one scandal or another. While we are happy ignoring the important accounting function of reporting and auditing while that function works properly, as soon as it fails, we turn on corporations and the accountants that keep them running to call for justice and perhaps reform. Today, the accounting practices of publically-traded companies are governed by numerous regulations and requirements, among them the Sarbanes-Oxley Act of 2002 (SOX), a piece of legislation introduced following a number of headline accounting scandals at companies like Enron and WorldCom (HBS Working Knowledge, 2014). It is vital that users of financial statements can trust the accuracy of those documents. 3M (as cited in Gibson, 2013), a publically traded company issued an annual report in 2010 in compliance with regulations to provide external entities information on their financial condition. This essay examines two sections of that report, discussing their purpose, necessity, before addressing the auditor’s role in those very reports.
Responsibility for Financial Statements
The first subsection of 3M’s 2010 annual report published by Gibson (2013) is titled, “Management’s Responsibility for Financial Reporting (p. 89). In this section, 3M correctly asserts that management bares the responsibility for financial statements and all information contained therein. According to Gibson (2013), certain companies choose to include management statements to shareholders with their annual report, as 3M has done here. In this declaration, company leadership testifies that their internal accounting practices are in accordance with Generall...


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...the statement of stockholders equity, the balance sheet, or the statement of cash flows, represent a significant obligation of public company management. These managers are not only ultimately responsible for producing said statements and standing behind their content, but under SOX, they also must create and sustain an internal control system over financial accounting. Such a system prizes the accuracy and completeness of financial information and is evaluated by impartial auditors during their examination of the annual report. These auditors hold the responsibility of producing an opinion on whether financial information is presented fairly and in accordance with GAAP. Ultimately, 3M properly provides two key statements in their 2010 annual report, and by all accounts, maintains accurate financial statements and meaningful internal controls over those statements.

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