How Sarbannes-Oxley Act affects internal controls

Sarbanes-Oxley Act which is also referred to as the public company accounting reform and investor protection mo is a wider legislation passed in 2002. The SOX act has provisions touching on the standards for all the United States public firms boards, management as well as the public accounting companies. Sarbanes-Oxley Act has been considered one of most important legislation to the Americas security laws probably since the New Deal of passed in 1930s. According to Moeller (2008) it has football team sections that clearly spell out the standards it oversees.The provisions of this law implies that American companies as well as those with the united states listings have a legal obligation to tell that they have efficient and effective mechanisms of both immanent control and financial inform. The main objective of the Act is to enhance both transparency and financial reporting disclosures that would stifle any form of corporate or financial fraud. The SOX also enforces the responsi bility of the senior officers in ensuring accuracy as well as money plant in the disclosure of financial outcomes (Porter & Norton, 2007).The Sarbanes-Oxley act of 2002, in sections 302 and 404 have some tough provisions regarding the internal controls. Section 302 for example calls for certification of all culture relayed to the public or market as correct. This section also requires evaluation of the disclosure controls (that is having full control of all information issued to the public) as well as being aware of any changes that would or might affect the performance of the controls from the time evaluation was done.It requires that every company set up certain internal procedures that would ensure honesty and accuracy in financial reporting (Kairab 2004). Section 404 on the other hand a requirement for annual evaluation of controls military capability and procedures for financial reporting. It encourage stipulates that this evaluation must be vindicated by an external audito rs report. Moeller (2008) suggests that the external auditors are obligated to give impression regarding the effective internal controls over financial disclosure was adhered to in every material respects by the management.In addition to this, the external auditors are further mandated to offer an opinion on the financial statements accuracies (Ramos, 2006). Section 404 of the Sarbanes Oxley act requires both the management and the external auditor to disclose on the adequacy of the firms internal control over financial disclosures. It has been considered quite costly to implement because documenting as well as testing some of the vital financial manual(a) and other related automated controls would need a lot of effort (Moeller 2008).Benefits so Far In a research carried out in 2006 among intimately 2,500 American companies, it was found out that those firms that had no material limitation in their internal controls and those that corrected any of such limitations in appropriate and timely manner, registered a expectanter outcome in share prices as oppose to firms that did not. The report further showed that the profits to a compliant firm in share price were much higher than the companies respective costs for Sarbanes-Oxley Act section 404 (Ramos, 2006).Conclusion Despite many attempts by PCAOB to help reduce the high cost of compliance, fare as well as guidance, much is needed to be done to improve on the management of companies vis-a-vis adherence to the Sarbanes-Oxley act. Nevertheless it is one great piece of legislation that will help to safeguard some of the Americas companies fundamental imperative in their markets which are characterizes by high take of corporate confidence as well as participation which has long been second to none.