Conduct an Internet search to locate a copy of the Sarbanes?Oxley Act of 2002. Read and summarize the requirements of Section 302 of the Act. Discuss how those provisions would or would not have deterred the actions of Scott Sullivan, CFO at WorldCom.

Question

What will be an ideal response?

Answer 1

Section 302 of the Sarbanes-Oxley Act of 2002 requires a public company’s CEO and CFO to certify in
each annual and quarterly financial statement report filed with the SEC the following:
They have reviewed the report.
That, based on the signing officers’ knowledge, the report does not contain any untrue statements
of material fact or omit any material fact necessary to make the report misleading.
The financial statements, based on the officers’ knowledge, are fairly presented.
The signing officers
A. Are responsible for establishing and maintaining internal controls.
B. Have designed such internal controls to ensure that material information related to the
company and its subsidiaries is made known to those officers by others in the entity.
C. Have evaluated the effectiveness of internal controls as of a date within 90 days prior to the
report
D. Have presented in the report their conclusions about the effectiveness of their internal controls
based on their evaluation as of that date.
The signing officers have disclosed to its auditors and the audit committee
A. All significant deficiencies in the design or operation of internal controls and have identified all
material weaknesses identified.
B. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the company’s internal controls.
The signing officers have indicated in the report whether there were any significant changes in
internal controls that could significantly affect internal controls subsequent to the date of their
evaluation.
It is difficult to assess whether the presence of these provisions would prevent or deter someone like
Scott Sullivan from falsifying the financial statements. However, many have noted how the Section
302 provisions have finally alerted senior management to the importance of the financial reporting
process. The penalties issued by the SEC in its final rules issued to implement the provisions of Section
302 significantly extend the criminal penalties associated with violating the provisions of Section 302.
Violators are subject to million dollar fines and up to 20 years imprisonment. Hopefully, these harsh
consequences will deter individuals, like Scott Sullivan, from engaging in material financial statement
fraud.