...The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 The Act & Impact ACC 410, Jackie Lewis, Ph.D. Abstract The Sarbanes-Oxley Act, officially named the “Public Company Accounting Reform and Investor Protection Act of 2002”, is recognized to be the most noteworthy U.S. federal disclosure and corporate governance legislation since the Securities Act of1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act). Furthermore, the provisions of the Act are momentous enough that it is considered by many to be the most significant change to the federal securities laws in the U.S. since the New Deal. The Sarbanes-Oxley Act of 2002 The Act & Impact The Sarbanes-Oxley Act of 2002 was signed into law following the wake of corporate financial scandals. Many large companies such as Enron, WorldCom, and Arthur Anderson were affected. The Act provides a solid set of government rules that are aimed to discourage and punish corporate and accounting fraud, as well as corruption. SOX is designed to carry out these tasks by imposing severe penalties for wrong doings, while protecting the interest of workers and shareholders. The stated purposed to protect investors is maintained by improving the accuracy and reliability of corporate disclosures, imposing strict rules for audits and auditors of publically traded companies, preventing insider trading and deals, requiring companies to adopt strict internal controls, and increasing the penalties...
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...Effect of Unethical Behavior Christina Canfield August 4, 2013 ACC/291 Vanessa J. McCall Effects of Unethical Behavior In 2002 the congress passed the Sarbanes-Oxley Act. The first thing is to understand what the Sarbanes-Oxley Act is and what it does. This paper will also view one article about the Sarbanes-Oxley Act. To see how the Sarbanes-Oxley Act effect companies this paper will discuss the environment of firms before the act was passed. The question this paper will address it how the Sarbanes-Oxley Act affects auditing firms. The Sarbanes-Oxley Act was created to keep accountants firms and businesses honest with accounting documents. According to Jelinek, K., & Jelinek, R. (2010) article there are six specific sections within the Sarbanes-Oxley Act that effect just the client’s role as a buyer and the audit firm’s role as a seller. The six specific sections are 201: Prohibited Auditor Activities, 203: Audit Partner Rotation, 204: Auditor Reports to Audit Committees, 206: Conflicts of Interest, 301 Public Company Audit Committees, and 407 Disclosure of Audit Committee Financial Expert. Each of these affects the auditor’s relationship with the company they are auditing and the other way around. Before the Sarbanes-Oxley act the accounting firm’s environment was configured to the firm’s perspectives on how best to approach the auditor-client exchange. The audit firms were also sale-oriented. Because the audit firms were sales-oriented the firms would reject...
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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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...Sarbanes-Oxley Act (SOX) of 2002 Topics Covered: How SOX affects the following: CEO’s and CFO’s of Public Companies Outside Independent Audit Firms SOX section 404 on Internal Control The Main Advantages and Disadvantages of SOX Executive Summary The Sarbanes-Oxley Act of 2002 (SOX) was intended to create more transparency in financial reporting and to combat the perceived inflation of CEO compensation. To do this, the act required that a board of directors be financially independent from the CEO and have no familial ties. It also required the CEO and CFO to personally sign all quarterly and annual reports submitted to the SEC and provided for criminal penalties if this was not done. Our research indicates that Sarbanes-Oxley has created more transparency in the system, but it has actually had the opposite effect than was intended with regards to CEO compensation. The research indicates that CEO compensation has increased for many companies post-Sarbanes-Oxley. Due in large part to the Enron scandal, SOX needed to address outside independent audit firms to improve the accuracy of financial reports disclosed by publicly traded companies. These financial reports are used by investors, bankers and interested consumers to determine how well an organization is doing and provide investors with vital information about a company’s performance. This paper will discuss the Sarbanes-Oxley Act and how the SOX law affects outside independent audit firms. Next we review...
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...OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the key components of the Sarbanes Oxley Act and...
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...the Shawnee News-Star, describe the elements that make up the Generally Accepted Auditing Standards and how these standards apply to financial, operational, and compliance audits. This paper will also explain the effect that the Sarbanes-Oxley Act of 2002 as well as the Public Company Auditing Oversight Board (PCAOB) will have on the audits of companies that are publicly traded, and will also discuss the additional requirements that are placed on auditors as a result of the Sarbanes-Oxley Act as well as the actions of the PCAOB. Auditing is defined as “ a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users” (Boynton & Johnson 2006, p. 6). The auditing process begins with the auditor obtaining information of an entity and evaluating, in an unbiased manner, this information as it relates to the processes, economic transactions and procedures of the entity. When evaluating this information, the auditor must ensure that the information complies with Generally Accepted Accounting Principles (GAAP) and any other accounting standards that may apply. Once the auditor has evaluated this information, he or she then compiles a report of his or her findings that is submitted to the appropriate parties. The goal of this report is “to add credibility to management's representations...
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...The Sarbanes-Oxley Act of 2002 Presented by: Ibrahim M. Conteh; Ruby Proctor Garcia; Kathleen M. Parry; Joseph M. Schmerling; Jaime Ulloa Auditing Theory and Practice 0902 ACCT422 4021 Due: April 29, 2009 Table of Contents Page Number What is the Sarbanes-Oxley Act of 2002? 3 Why was SOX established? 4 When did SOX take effect? 5 What companies were affected and how? 6 What does SOX compliance require? 9 Conclusion 11 References 13 What is the Sarbanes-Oxley Act of 2002? The Sarbanes-Oxley Act of 2002 – its official name being “Public Company Accounting Reform and Investor Protection Act of 2002” – is recognized to be the most significant U.S. federal disclosure and corporate governance legislation since the Securities Act of 1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act), and, the provisions of the Act are significant enough that it is considered by many to be the most significant change to federal securities laws in the U.S. since the New Deal. It is best understood, however, not as a piece of legislation centered on a new concept of regulation, but as a process which mandated that many major reforms be implemented as soon as possible (in some cases, within 30 days) on the precise schedule specified by Congress. In that sense, the Enron and WorldCom debacles provided the impetus of public outrage that...
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...IMPORTANT AICPA INFORMATION ON SARBANES-OXLEY |How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession (AICPA) | | | | | | | | | | | | | | | | | | | | ...
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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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...financial accounting Sarbanes and Oxley or SOX is one of the most important pieces of legislation passed in this decade or even in the history of financial accounting. Sarbanes and Oxley brought about major changes in financial accounting which allows for more regulation of the accounting profession. It took Accounting form being looked at as a numbers game and placed more importance on the communication aspect of the profession. This essay will focus on Sarbanes and Oxley and its impact on the accounting profession as a whole. How can one piece of legislation weigh so heavily on a profession? To answer that question one has to look at the impact Sarbanes and Oxley has had on the practice of public accounting. Prior to Sarbanes and Oxley the regulation of public accounting was done internally, through organizations such as the SEC. However with the passage of Sarbanes and Oxley the profession was given an overhaul making companies more accountable. Sarbanes-Oxley was established to improve the quality and transparency of the financial statements issued by public companies. With that purpose in mind Sarbanes-Oxley developed a new board to oversee how financial statements are audited according to independent standards, the Public Company Accounting Oversight Board. This changed the game. It decreased the chance of companies falsifying financial statements, mainly because of the threat of penalties and imprisonment. In addition Sarbanes and Oxley have had a cascade effect on other accounting...
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...SOX effect on DCAA Christy Taylor AC 503 July 11, 2011 SOX effect on DCAA The public looks to financial documents for evidence on the success of companies and a basis for investing decisions. Investors and banks rely upon these documents to provide accurate information for the decision-making process. The accountants and auditors that create and verify the accuracy of the information within these documents hold the trust of those who rely on accurate financial information. Once the trust is broken, it can take time to rebuild. Unfortunately, the publics’ trust in the accounting profession was shaken with several large scandals such as Enron and WorldCom, and they are still working toward repairing the damage. Investors lost faith and hesitated to invest money, which can hurt the economy. In answer to this developing crisis of faith, President Bush signed the Sarbanes-Oxley Act of 2002 (SOX) (U.S. Securities and Exchange Commission, 2010). This act has far reaching effects on every aspect of the accounting and business world. It placed into effect guidelines and repercussions in accounting to help prevent future fraud. Those standards that were already in place, adapted to SOX and changed to meet the more stringent requirements. One such example is Defense Contract Audit Agency (DCAA) standards. Like all agencies, DCAA had to adapt to the new requirements of SOX, but the changes needed to first be defined. Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of...
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...Ian Pinkerton ACC 497 Mr. Patten 11/9/2014 Has Sarbanes-Oxley been Successful? The Sarbanes-Oxley Act (SOX) was enacted on July 30th, 2002. The bill is comprised of eleven different sections that cover quite a large amount of topics. Prior to the enactment of the Sarbanes-Oxley Act, there were several highly controversial and heavily scrutinized cases of corporate fraud that included the infamous Enron, Tyco, and WorldCom. These scandals cost investors billions of dollars when the share prices of these companies collapsed after the cases were filed. These cases of fraud indicated to both the public and the government that there was not enough regulation over financial statements of publically traded companies specifically. It focused specifically on publically traded companies to contain the fallout of lost investor’s money when these frauds come to light and the stock prices plummet. In order to fix these problems Congress rushed the Sarbanes-Oxley Act through both the House and Senate. This Act was one of the largest pieces of financial information legislation since the securities acts of 1933 and 1934 (Sweeney 2012). The Sarbanes-Oxley Act has faced quite a lot of criticism, but it has been quite successful. SOX legislation has for most come at rather high regulatory costs. The average annual compliance costs were $2.9 million prior to 2007 and $2.3 million since then (Singer & You 2011, pg 557). While it’s completely understandable why that large of a bill would...
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...The Sarbanes-Oxley Act of 2002 and the PCAOB Liberty University Abstract As a result of massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, President George W. Bush signed into legislation during 2002 the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most importing accounting standards that are used every day by auditors of public companies. This paper takes a look at the Sarbanes-Oxley Act of 2002 and its effect on internal controls and small businesses. Also, I will discuss the purpose and specific pronouncements related to accounting information systems and internal controls; as well as the impact of possible future pronouncements. Keywords: Sarbanes-Oxley, PCAOB, Accounting information systems The Sarbanes-Oxley Act and the PCAOB Massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, led to the creation of the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession since it was signed into law. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most...
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...Introduction to Sarbanes – Oxley Act of 2002 The Sarbanes – Oxley Act of 2002, also known as the Public company accounting reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron and WorldCom. The Act establishes a new quasi-public authority, the Public Company Accounting oversight Board for overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The Act covers issues such as auditor independence, corporate governance and enhanced financial disclosure. Major Provision of Sarbanes – Oxley Act of 2002 The Sarbanes Oxley Act of 2002 established corporate accountability and civil and criminal penalties for white – collar crimes. This act is a United States federal law passed in response to a number of major corporate and accounting scandals including those effecting Enron, Tyco and WorldCom. These scandals resulted in a decline of public trust in accounting and reporting practices. This Act provides regulatory bodies and courts to take various actions – civil and criminal proceedings in connection of misstatements amounting to accounting scandals and fraudulent financial reports, other frauds on securities matters, obstruction of justice and retaliating against corporate Whistleblowers. The Act also enforce tougher civil and criminal penalties for fraud and accounting...
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...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” of auditors as there was significant...
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