Could SOX have prevented the Phar-Mor fraud? How? Which specific sections of SOX?

Take the above case summary and answer these questions: 1. Could sox?

Yes SOX could have been helpful in preventing the Phar Mor fraud. Sarbanes-Oxley Act of2002 is a law which helps investors avoid fraudulent financial practices. It requires companies to provide accurate and reliable information. In this instance, the relevant sections are 302 and 404.

Section 302 requires CEOs and CFOs of publicly traded companies to certify their company’s financial statements as accurate and complete. This certification would have allowed Phar-Mor’s senior management to verify or alter its reported financial results.

Publicly traded companies are required to implement an effective system for internal control over financial reports (ICFR) under section 404. The section 404 requires publicly traded companies to evaluate their ICFR annually in order to identify accounting mistakes and fraud early. A functioning ICFR could have detected any fraud at Phar-Mor, such as an overstatement of profit margins and the creation of fictitious vendors to receive discounts on inventory purchase.

These two sections place more responsibility on employees and executives of public companies to produce accurate and honest information about finances, so investors can make educated decisions about how they invest their money.

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