Question

What is the main purpose of the Sarbanes-Oxley Act? Why are internal control especially important in the areas of cash and receivables?

Answer 1

Purpose of Sarbanes Oxley Act-

• It is designed to oversee financial reporting standards and implement controls over specific statements.
• SOX review legislative audit requirements and protect investors by improving the accuracy of corporate disclosures.
• It provides strict guidelines for board of directors accountability and legal signing of contracts.
• SOX Act 2002 mandates reforms to existing securities regulations and imposed penalties for fraudulent activities.
• This law improves corporate responsibility and better financial statement reports to the client.

Followings are the internal controls for cash and receivables-

• Four eye review for every cash transactions and maintenance of respective receipts will reduce errors.
• Separate ledger for receivables will help the accountant to generate accurate report on monthly basis.
• Reconcile of cash receipts to ledger and deposits will provide clear picture to the investors about the company's financial position.
• Internal audit for receivables will enhance more accuracy in balance sheet and improves the leverage.