...Sarbanes-Oxley Act: Cost Benefit Analysis The Sarbanes Oxley Act was signed into law by President Bush in 2002. This Act was in direct response to the accounting scandals of the early 2000s. A time that I remember very well, because I’d just graduated from college into the accounting industry, and it was in a total uproar. The Sarbanes Oxley Act (SOX) ordered a number of reforms to enhance corporate responsibility, financial disclosure, and to fight corporate and accounting fraud. This regulation also put financial as well as criminal pressure on the perpetrators, including the auditors. The Sarbanes Oxley Act (SOX) was named after two of its main architects, Senator Paul Sarbanes and Representative Michael Oxley. The SOX Act is composed of eleven titles. They are: Public Company Accounting Oversight Board, Auditor Independence, Corporate Responsibility, Enhanced Financial Disclosures, Analysis Conflicts of Interest, Commission Resources and Authority, Studies and Reports, Corporate and Criminal Fraud Accountability, White Collar Crime Penalty Enhancement, Corporate Tax Returns, and Corporate Fraud Accountability. This Act requires that top management assume responsibility for the financial records that are put out by the corporation. The have to sign off on the information before it is released. This is covered in Section 302. They are certifying that the report does not contain material untrue statements and that the statements provide a fair picture of the financial...
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...Sarbanes-Oxley: Benefits vs. Costs Sarbanes-Oxley: Benefits vs. Costs The American Competitiveness and Corporate Accountability Act of 2002, commonly referred to as the Sarbanes-Oxley Act (SOX) was enacted in response to corporate financial scandals involving companies such as Enron, WorldCom, and Tyco International. While SOX was written specifically for public companies; a few provisions, including whistleblower protection and document retention apply to all companies and nonprofit organizations (Levy, 2009). The stated purpose of the SOX legislation is “to protect investors by improving the accuracy and reliability of corporate disclosures” (Martin & Combs, 2010). SOX requires additional internal monitoring and disclosure of internal accounting control practices. SOX also mandates that CEOs and CFOs personally certify accounting disclosures. Ultimately, SOX was designed to increase accountability and transparency in an effort to restore investor confidence. While SOX has been effective since its enactment, many question whether the benefits outweigh the costs. Major Provisions SOX includes over 60 separate sections, including several significant provisions (H.R. 3763). Section 101 created the Public Company Accounting Oversight Board (PCAOB) to oversee SOX and public accounting firms. Oversight is critical to the successful implementation of SOX requirements. Section 203 requires the lead audit or coordinating partner and the reviewing partner to rotate...
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...The Effects of the Sarbanes-Oxley Act There have been widespread reactions to corporate scandals which have become seemingly common in corporate America. Government reaction to these unethical corporate and accounting scandals has led to regulation and intervention. The Sarbanes-Oxley Act of 2002 is seen as a response to the lack of corporate governance present in many corporations. The Sarbanes-Oxley Act of 2002 is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called Sarbanes-Oxley, Sarbox, or SOX. This United States federal law was enacted on July 30, 2002 in response to a number of major corporate and accounting scandals, including those affecting Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. The act is administered by the Securities and Exchange Commission. It sets deadlines for compliance and publishes rules on requirements. The Act contains 11 titles; these describe specific mandates and requirements for financial reporting. Moreover, the Sarbanes-Oxley Act introduced major changes to the regulation of financial practice and corporate governance. It is seen as the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s” (Li, 1). It is extremely essential in to ensure protect to shareholders and the general public from accounting errors and fraudulent practices in an enterprise. However, with government regulation and intervention one must...
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...MGT7019 | Dr. Jennifer Scott | | | Ethics in Business | Case Study: A primer on Sarbanes- Oxley | <Add Learner comments here> ------------------------------------------------- ------------------------------------------------- Faculty Use Only ------------------------------------------------- <Faculty comments here> ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- <Faculty Name> <Grade Earned> <Writing Score> <Date Graded> Case Study: A primer on Sarbanes-Oxley Leona M. Anderson Dr. Jennifer Scott Northcentral University A Primer on Sarbanes-Oxley Introduction The problem to be investigated is whether Sarbanes-Oxley has helped to improve public trust in the markets and reduce non-ethical practices in business. The Sarbanes-Oxley Act of 2002 (SOX) was passed by the 107th Congress on July 30, 2002 (Sarbanes-Oxley, 2002) to provide protection to investors and shareholders as a result of fraudulent activities by some U.S. Corporations such as Enron, Tyco, WorldCom, and Adelphia, as well as other public companies (Jennings, 2012; Scott & Nganje, 2011). SOX introduced major regulatory changes which affect financial practice and corporate governance; and compliance is mandatory for ALL organizations (Guide to Sarbanes-Oxley, 2006). SOX is actually Public Law 107-204 and it is divided into eleven different...
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...Essay #2 November 3, 2009 Sarbanes-Oxley Act Provisions Publicly held companies are mandated to specific regulations of Sarbanes-Oxley Act; while privately held and non-profit companies are not specifically required to adopt the provisions of Sarbanes-Oxley Act (SOX). I don’t agree with private companies adopting the entire provision of Sarbanes-Oxley Act. I do support adopting certain parts of the Sarbanes-Oxley Act provision. It is cost prohibitive for private and nonprofit companies, especially for small private companies. Private companies and non-profit companies do not have to adopt the provision of Sarbanes-Oxley act, but they may pick and choose part of the governing principals that apply to them. There are advantages and disadvantages to adopting The Sarbanes-Oxley Act for private and non-profit companies. The advantages are that private companies that intend to go public in the future have already established an auditing committee, a whistleblower protection policy, and improved internal controls. The disadvantages are it is costly to adopt Sarbanes-Oxley Acts and requires hiring an outside independent auditor. It also creates more paperwork, such as checklist full of questions. My main argument with not adopting the entire Sarbanes-Oxley Act is that it is very costly for small private companies. “A survey of more than 300 public companies by Financial Executives International determined an average, first-year compliance cost of $3.14 million per company...
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...Phillips RE: The Cost and Benefits of Sarbanes-Oxley/ Forbes ARTICLE SYNOPSIS Sarbanes Oxley Act is “an act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations” (“Sarbanes Oxley Act,” 2015). In the review of “The Cost and Benefits of Sarbanes Oxley”, the article started out speaking on how the SOX Act 2002 was designed to protect investors, but many felt as if it was politically motivated. This Act will cause to lose risk takers and competiveness. In today’s business environment, the Sarbanes Oxley Act molded the ethical standpoint to numerous companies. The SOX Act 2002 was designed to keep companies honest. The criminal penalty for this law is a fine and/ or 25 years, but no more than 25 years. The stiff punishment minimized the fraudulent ideas from individuals and firms. The SOX Act 2002 increased the consumer confidence. “We only know that there were benefits in terms of financial reporting and corporate governance; that costs of implementation were higher for smaller companies; and that concerns about risk-taking and investment haven’t come to bear” (“The Cost and Benefit of Sarbanes and Oxley,” 2014, p. 1). This article also goes and talk about the cost and benefits of the Sarbanes Oxley Act 2002. SOX restrictions pushed several fraud-prone companies to go private. These was mainly the smaller companies that were fraud prone. I believe overall Sarbanes Oxley Act 2002 was good for...
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...The Ineffectiveness of the Sarbanes Oxley Act In Corporate Management and Accounting In the early 1990s, a young company named Enron was quickly moving up Fortune magazine’s chart of “America’s Most Innovative Company.” As the corporate world began to herald Enron as the next global leader in business, a dark secret loomed on the horizon of this great energy company. Aggressive entrepreneurs eager to push the company’s stock price higher and a series of fraudulent accounting procedures involving special purpose entities were about to be exposed. In early 2002, the United States Justice Department announced its intent to pursue a criminal investigation into the once mighty company, Enron. After the gross negligence of accounting procedures were discovered at Enron, Congress passed the Sarbanes Oxley Act of 2002. While this legislation was seen by many as the rules to keep large corporations from destroying investors and employees, it also created unnecessary confusion and unbearable costs for American businesses. Perhaps one of the most confusing pieces of the Sarbanes Oxley Act is §404, regarding “the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.” (Sarbanes Oxley Act of 2002) While this sounds like good legislation, the cost of compliance with §404 varies greatly among public companies, depending on the size of their business. Joseph Piche, founder and CEO of Eikos, Inc., testified...
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...Adoption of the Sarbanes-Oxley Act of 2002 Accounting 100: Accounting I March 19, 2011 Strayer University Adoption of the Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002, commonly called the SOX, is a United States federal law that was passed in response to a number of major corporate and accounting scandals (veracode.com/solutions/sox-compliance.html, 2011). The act was passed to strengthen corporate governance and restore investor confidence. It was sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley. The act was passed in response to a number of major corporate and accounting scandals, the most popular being Enron, in the United States (audit-is.com/legislation/sox.htm, 2011). As a result of Enron’s scandal and public bankruptcy, congress passed the act which required all public companies that have business in the United States to have an accounting framework (Nelson & Stanley, 2011). The Sarbanes-Oxley Act made it mandatory for all public companies to contain internal financial auditing controls and to present the results in annual assessments. The results must be reported to the Securities and Exchange Commission (SEC) on an annual basis. Furthermore, the Sarbanes-Oxley Act of 2002 requires all public companies to have an external auditor. The external auditor will audit the company’s internal control reports of management and their financial statements (Baker, Bealing Jr, Nelson & Stanley, 2011). In this...
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...Sarbanes Oxley Act Joslin Cuthbertson Hampton University Abstract The Sarbanes-Oxley Act came into effect in July 2002 and introduced major changes to the guidelines of corporate authority and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main originators. The Sarbanes Oxley Act set a number of non-negotiable deadlines for publically traded companies to comply to. The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important section within these eleven titles is usually considered to be Section 404, which deals with internal controls. Since 2002, there has been a lot of debate about whether the act has positively or negatively affected corporate America. In this paper I have discussed the opinions of both sides of the argument. The Sarbanes-Oxley Act is a bill passed by Congress in 2002 after several corporations took actions that caused their companies to fail. These companies include Enron and WorldCom. As a result of these actions, stockholders lost confidence in the financial system. The intent of the bill is to protect investors of corporations by making the corporations accountable for any unacceptable accounting errors and practices. The Act is named after its main proponents, Senator Paul Sarbanes and Representative Michael Oxley. The Acts real name is the Public...
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...Summary of John C. Coates article, “The goals and the promises of Sarbanes-Oxley Act”. On July 25, 2002 the date when stock market indices were making a new history against over publicized corporate scandals, bankruptcy and accounting misstatements, the new legislation “The Public Committee Accounting Reform and Investor Protection Act of 2002” widely known as Sarbanes Oxley Act was passed by the congress in response to investment company abuses. On the article, “The goals and the promises of Sarbanes-Oxley Act”; John C. Coates, professor of Harvard law & economics school analyzed the pre and post Sarbanes Oxley era and the pros and cons of the SOX legislation. In addition, he recommended that by reconstituting governance and accountability of PCAOB, implication of Sarbanes Oxley can be more effective to safeguard net long term socioeconomic market gain. While discussing about the enforcement in pre Sarbanes Oxley era, Coates pointed out the previous laws and regulations lacked effective implementation of corporate governance. With the threat of systematic corporate misstatements, frauds and rise in significant class action suits, in the pre SOX era investors’ confidence were dramatically declining. As in such scenarios in last decade, Coats describe the core goals on which SOX were formed. First, on its core, “SOX legislation was designed to fix the auditing of U.S public companies.” Second, Sarbanes Oxley was predominantly designed to regulate the “deprofessionalization”...
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...Sarbanes- Oxley Act Impact of Law Max McKay Business Law & Ethics Professor DeLange May 17, 2007 Impact of Sarbanes-Oxley Act Not only were billions of dollars lost in corporate accounting scandals involving Enron and Worldcom, thousands of jobs on top of an immeasurable amount of credibility was also lost in the process. As most everyone knows by now, or should know, 2002 became a turning point in the world of business. Publicly traded companies such as Enron and Worldcom were caught by the SEC misrepresenting financial statements, quickly leading to steep downward spiral in stock prices of publicly traded firms throughout the market. Once considered to be one of the top five accounting firms, Anderson was fined $500,000 and given five years of probation following the Enron scandal. The firm initially lost over 1,000 employees and is no longer audits corporations (CBCNews, 2002). As a result of these scandals, investors lost millions of dollars as the marketplace took a big hit that day nearly five years ago. On June 25, 2002, it was announced that Worldcom was a part of the largest corporate fraud case in American history at the time, with numbers reaching up to $3.8 billion (Snee, 2007). Mr. Snee goes on to say that stocks sunk to new lows on news of the fraud, as investor’s increasingly lost faith in companies’ earnings statements. As a result of such fraudulent activities associated with Worldcom and Enron, President George Bush signed the Sarbanes-Oxley...
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...What exactly is the Sarbanes-Oxley Act? Who does it protect? Who benefits from SOX most? I will discuss what the Sarbanes-Oxley Act (SOX) is its key components, and its primary objective. Also, I will discuss the criticisms surrounding the SOX act. Why it is important to enforce the Sarbanes-Oxley Act. Finally, I will discuss if the SOX has achieved its goals. The main purpose of Sarbanes Oxley Act is to ensure that the corporate sector works with transparency and provides full disclosure of information as and when required (Bing, 2007). This basically means that corporations must keep good records of what goes on in their business, not just for their benefit, but just in case of an audit, then they’ll have all their transactions ready to be reviewed and to keep future corporate scandals down. The Sarbanes-Oxley Act was passed by Congress on July 30, 2002. The law forced public companies to spend much more money having their books thoroughly audited, and it increased the penalties for executives who defrauded investors. Since the bill's passage and implementation, nervous investors who had yanked trillions of dollars from the market have returned (Farrell, 2007). The men behind the Sarbanes-Oxley Act consist of U.S. Treasury Secretary Henry Paulson, New York Stock Exchange CEO John Thain and former AIG chief Maurice "Hank" Greenberg. Even though their voices my appear to be isolated, Charles Niemeier a member of the Public Company Accounting Oversight Board...
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...Sarbanes Oxley Act has had many positive impacts on American businesses, but has also had its share of criticism. As a result of the implementation of the Sarbanes Oxley Act, firms now produce financial information that is more transparent and holds some form of accountability. One of the greatest benefits of the Sarbanes Oxley Act is that investors are more confident because they now have access to more accurate financial statements and are able to assess the financial strength and stability of publicly traded companies when making investment decisions. American businesses now have stronger corporate governance as companies are more focused on being compliant and honest in their business practices. Sarbanes Oxley has helped to reduce the number of fraudulent financial / accounting activities in publicly traded companies and has also forced companies to have stronger internal controls, which results in more reliable and accurate financial statements. Although Sarbanes Oxley has had a number of positive results on American businesses and investors, several firms resent the act and its impact on their companies. Many executives and managers of such companies complain about the costs associated with being in compliance with the act. These additional costs include time and expenses for external auditors, legal fees, additional employees / compensation fees, fines for non-compliance, etc. They often argue that the cost of compliance exceeds the benefits of the act, which is pointless...
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...Article Review: Sarbanes-Oxley Act of 2002 It is unfortunate that many increasing standards come after a failure in the system. The Sarbanes-Oxley Act of 2002 is a primary example. The public scandals of Enron, Tyco and WorldCom were quickly followed with this act. It brought great change throughout the world of business. The Act was enacted in July of 2002 and co-authored by U.S. Sen. Paul Sarbanes of Maryland and U.S. Rep. Michael Oxley of Ohio. The Sarbanes-Oxley Act gave more confidence in investors and creditors when it comes to fraud by reforming reporting standards. Although the market took a huge hit after the collapse of several major companies between 200-2004, the Sarbanes-Oxley began to rebuild the market and the ethical standards within it. The Sarbanes-Oxley brought about many other aspects besides the act itself. In turn, the Public Company Accounting Oversight Board was created, assessment of liability with auditors was enacted, new internal control procedures, and more liability for all involved. The oversight Board is responsible for monitoring public accounting companies and performs regular audits. Sarbanes-Oxley intended for two main things with the market; to boost the confidence of investors in a previously broken market, and to decrease fraud. Along with positives, the Sarbanes-Oxley Act brought on some negative aspects as well. Some public companies required to comply with Sarbanes-Oxley are subject to additional costs directly assigned...
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...The Impact of the Sarbanes-Oxley Act on Corporate America In discussing the impact of one of the most important laws passed in Congress to legislate the accounting and reporting rules of corporations, I need to give a brief definition and some background information for the Sarbanes-Oxley Act. In 2002, the Sarbanes-Oxley Act was passed into law by the United States Congress. After a series of high profile corporate scandals, such as Enron and WorldCom, the Congress of the United States passed this legislation “to improve and maintain investor confidence. The law requires companies to have more independent board directors (not just company insiders), to adhere strictly to accounting rules, and to have senior managers personally sign off on financial results.” (Bateman, 173). Before the fall of corporations like Enron and WorldCom, there was also far too much corporate fraud during the Internet bubble. According to Stanley Block and his co-authors, “The major accounting firms had failed to detect fraud in their accounting audits, and outside directors were often not provided with the kind of information that would allow them to detect fraud and mismanagement.” (Block, 12). What is the definition, in a nutshell, of the Sabarnes-Oxley Act? This is something that needs to be defined and understood before examining the positive and negative impacts of this law upon corporate America. The Sarbanes-Oxley Act “establishes strict accounting and reporting rules in order to make senior...
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