Question

Sarbanes-Oxley legislation requires that management designs and implements controls over the entire financial reporting process. What systems does this include?

Answer 1

The Sarbanes-Oxley Act requires management to design and implement controls over systems that are part of the financial reporting process, which includes transaction processing, general ledger, and consolidation systems.

Step-by-step explanation:

The Sarbanes-Oxley legislation, enacted as a response to major accounting scandals with corporations such as Enron, Tyco International, and WorldCom, aims to protect investors by enhancing the accuracy and reliability of corporate disclosures in financial statements. It mandates that management is responsible for designing and implementing controls over the financial reporting process. This not only includes the internal controls and procedures for financial reporting but also extends to the systems that affect any aspect of financial transactions, such as transaction processing systems, general ledger systems, and consolidation systems. As a part of corporate governance, the board of directors, external auditing firms, and large institutional investors play crucial roles in oversight and ensuring compliance with these controls.