The Sarbanes-Oxley Act was put in place to combat corporate

The Sarbanes-Oxley Act was put in place to combat corporate fraud that was affecting public companies in the country. The act was enacted in 2002 and replaced the Securities Act of 1993. Through the act, the Public Company Accounting Oversight Board was created and acted as a watchdog over the accounting industry. The act was meant to regulate executives’ activities in such companies and create legal liabilities to such executives in the case of fraud. The law was also meant to safeguard whistleblowers and ensure their job security as well as encouraging ethical conduct within businesses. Section 404 of the act requires the executives to certify that the company’s financial information was accurate otherwise face legal liability (Quattro, 2018).

The SOX created standards for company audit reports and required public company auditors to register with the Public Company Accounting Oversight Board. The accounting firms are also prohibited from doing consulting business with their clients as it leads to a conflict of interest and promotes fraud, as is Enron’s case. Corporations must also hire external auditors to review their accounting practices. The SOX Act was passed as it would make the CEO and other executives liable for any fraud carried out under their watch (Nazarova et al., 2020). The regulation affects the relationship between individual businesses and financial institutions. It prevents the businesses from having any conflict of interest as that would lead to fraud.

There are differences between financial accounting and managerial accounting. The first difference is that financial accounting has to comply with various set accounting standards. On the other hand, managerial accounting does not have to comply with such standards, especially if the information being compiled is for internal use. Financial accounting is historically oriented as it is concerned with the achievements the business has already made. Managerial accounting may address elements such as budgeting and forecasts, which can be future-oriented (Tersteeg, 2018). Financial accounting is mostly used for external purposes, such as providing information to the public members, while managerial accounting is used for internal purposes only. Financial reporting tends to be aggregated, generalized, and concise, while managerial reports are highly detailed, technical, and specific to certain phenomena.

In a nutshell, the difference between financial and managerial accounting is based on the intended user or use of the information. Managers within the organization use managerial accounting information to make informed decisions about the business. Financial accounting, on the other hand, provides information to those that are outside the organization. The latter must also comply with certain regulations and standards set through government legislation (Nazarova et al., 2020). A good example is the GAAP that ensures financial institutions and auditors follow certain patterns of financial accounting.

SOX affected managers in various ways. It makes them liable for any fraudulent activity that happens within their organization. The managers have to comply with the regulations set for accounting, and they have to make sure that their companies comply with the regulations that are put in place by the government. Failure to do so would lead to legal liability. Top-level managers may face prison time or be required to give up their bonuses or money made during the fraudulent period. Managerial accountants also have to make sure that they follow the accounting standards and that they maintain a professional relationship with their clients. SOX act affects the quality of financial reporting an audit. This improves the quality of information that the public receives (Tham & Madni, 2017). The act also protects any whistleblowers from being laid off within an organization due to the management’s telling.

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