In my view, a sound financial reporting infrastructure must be built on four pillars: (1)
accounting standards that are consistent, comprehensive, and based on clear principles to enable financial reports to reflect underlying economic reality; (2)
effective corporate governance practices, including a requirement for strong internal controls, that implement the accounting standards; (3)
auditing practices that give confidence to the outside world that an entity is faithfully reflecting its economic performance and financial position; and (4) an
enforcement or oversight mechanism that ensures that the principles as laid out by the accounting and auditing standards are followed. The Sarbanes-Oxley Act refocused attention on these pillars and provided many useful approaches to improve the financial reporting environment.
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