...“President George W. Bush signed the Sarbanes-Oxley Act ( SOX) of 2002 (Public Law 107-204) on Tuesday, July 30, 2002. Congress presented the act to the president on July 26, 2002, after passage in the Senate by a 99-0 vote and in the House by a 423-3 margin” (The sarbanes-oxley act). A new federal law was passed in reaction to corporate scandals such as the Enron, WorldCom, Tyco cases. The Sarbanes-Oxley Act puts extreme pressure on companies accounting practices and annual reports. Simply put, the act was created to protect investors from corporate corruption, and accounting misconduct. This act also created a new agency called the Public Company Accounting Oversight Board, or PCAOB. 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. The transparency purpose of Sarbanes Oxley Act is fulfilled by ensuring real time disclosure of information, the adherence to guidelines of the Generally Accepted Accounting practices, full financial details being made available of all the transactions not mentioned in balance sheet. This purpose of Sarbanes Oxley Act is also fulfilled by an expanded disclosure of financial and non financial control measures in force in every company. Similarly, public certification of these internal controls and financial measures also helps fulfilled the purpose of Sarbanes Oxley Act (Bing). The objective of Sarbanes Oxley Act is to make company audit committees...
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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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...Section 404 of the Sarbanes-Oxley Act: Curse or Blessing for Financial Reporting? Yuliya M. Ford University of Maryland University College Introduction In response to public concerns regarding the accuracy and quality of reported financial information by publicly traded companies, in mid-summer of 2002 Congress passed Public Law 107-204, 116 Stat.745 which is commonly referred to as the Sarbanes Oxley Act (SOX or the Act). The law was passed in large part due to the public outcry of the numerous unethical accounting scandals and fraudulent reports from such notable companies as - Enron, WorldCom, and Global Crossing (Singer and You, 2011). The goal of SOX was to mandate corporate governance reforms in order to help to instill investor’s confidence in capital markets. In an effort to establish best practices and standards SOX created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is chartered with the establishment of independent standards and overseeing the compliance of publicly traded companies with these standards (Agami, 2006). Another very important aspect that the PCAOB is charged with is reviewing the samples of audits conducted by accounting firms and ensuring that both the spirit and letter of the SOX act was established under (Parles, O’Sullivan, & Shannon, 2007). The Sarbanes-Oxley Act is divided into eleven sections referred to as titles. In terms of compliance, many have posited, including Addison-Hewitt Associates (2003), that the most...
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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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...Section 404 of the Sarbanes-Oxley Act: Curse or Blessing for Financial Reporting? Yuliya M. Ford University of Maryland University College Introduction In response to public concerns regarding the accuracy and quality of reported financial information by publicly traded companies, in mid-summer of 2002 Congress passed Public Law 107-204, 116 Stat.745 which is commonly referred to as the Sarbanes Oxley Act (SOX or the Act). The law was passed in large part due to the public outcry of the numerous unethical accounting scandals and fraudulent reports from such notable companies as - Enron, WorldCom, and Global Crossing (Singer and You, 2011). The goal of SOX was to mandate corporate governance reforms in order to help to instill investor’s confidence in capital markets. In an effort to establish best practices and standards SOX created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is chartered with the establishment of independent standards and overseeing the compliance of publicly traded companies with these standards (Agami, 2006). Another very important aspect that the PCAOB is charged with is reviewing the samples of audits conducted by accounting firms and ensuring that both the spirit and letter of the SOX act was established under (Parles, O’Sullivan, & Shannon, 2007). The Sarbanes-Oxley Act is divided into eleven sections referred to as titles. In terms of compliance, many have posited, including Addison-Hewitt Associates (2003), that the most...
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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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...The power of section 404 of the Sarbanes -Oxley Act on earning quality Law/431 July 23, 2012 The power of section 404 of the Sarbanes -Oxley Act on earning quality In this article, the authors study the effect of Section 404 of the Sarbanes-Oxley Act on two primary characteristics of earnings quality, reliability and relevance in combination. Using a difference-in-differences method, they find that firms that were required to comply with Section 404 during the first 2 years of its implementation improved the reliability of their reported earnings more than control firms that were not required to comply . More than seven years after the enactment of the Sarbanes-Oxley Act of 2002 (SOX hereafter), the effectiveness of the regulation remains controversial, with the recent financial crisis fueling this debate further (Altamura & Beatty, 2010). In this article, we study the effect of the internal control requirements of Section 404 of the Sarbanes-Oxley Act(Section 404 hereafter) on the earnings quality of all complying firms. We are motivated to study this issue because Section 404 is one of the most visible and tangible changes brought by SOX,1 the most far-reaching reform in the financial reporting and corporate governance requirements for public companies since the 1930s dimensions. For example, Section 404 mandates the disclosure of internal control-related problems, whereas FDICIA does not. Such differences may lead to different effectiveness of the two regulations...
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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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...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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...Sarbanes-Oxley Act of 2002 Andrea Kelley ACC/561 Professor Melinda Gregg November 9, 2015 Introduction A regulatory agency is a representation of a governmental body, which is produced by a legislature. Regulatory agencies are implemented to enforce laws of legislative functions, executive functions, and judicial functions. The regulatory agencies plays a central role in the operation of the financial sector. There are a numerous variances of regulatory agencies, which all serve a different purpose in business law enforcement. Some of which include the Environmental Protection Agency, Occupational Health and Safety Administration, and the Securities and Exchange Commission. For the purpose of this paper, a description of the Securities and Exchange Commission will be given. Further describing the regulations which will protect the public from fraud within corporations and what that represents in the Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation (SEC.gov, 2013). The SEC is the regulatory agency which governs securities markets and protects investors. It is a regulatory agency which oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception (SearchFinancialSecurity.com, 2015). The SEC is composed of five commissioners...
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...in order to limit the control of several business practices the federal, local and state government agencies has incorporated a way to regulate the control these businesses has over the public. Introduced to congress by Senator Paul Sarbanes and representative Michael Oxley in 2002 the Sarbanes-Oxley Act was passed, which is a set of laws that every organization whether it be big or small must abide by. With the incorporation of the SOX Act shareholders and the general public are protected from accounting errors, and fraudulent practices within an enterprise. It also is meant to improve the accuracy of corporate financial disclosures. The Sarbanes Oxley is arranged in eleven titles with the most important ones often being considered to be 302, 401, 404, 409, 802, and 906. Section 302 pertains to the ‘Corporate Responsibilities for Financial Reports.’ This article is to basically insure that the signing officers of all financial documents certify the reliability and thoroughness of all signed documents. Section 401 pertains to ‘Disclosures in Periodic Reports’. It insures all financial statements that are published be as accurate as possible and is presented in a way not to contain incorrect statements or admit state material information. Section 404 states that issuers are to publish all...
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...Sarbanes-Oxley Act of 2002 - SOX The finance industry was not always regulated. Prior to the great stock market crash in October of 1929, there was no regulation. After this crash, Congress held hearings to determine the problems and suggest solutions. This resulted in the Securities Act of 1933. The Security Exchange Commission (SEC) was created as a result of the Securities Act of 1933 and the Securities Exchange Act of 1934. The intent of this Commission was to restore confidence to investors by requiring honest reporting, and requiring companies and people who work in the industry to put investors’ interests first. After the fall of several publicly traded companies in 2001, it was clear that the SEC alone was not enough. For this reason and through the guidance of U.S. Senator Paul Sarbanes and U.S. Representative Michael Oxley, Congress passed the Sarbanes-Oxley Act in July 2002 (U.S. Securities and Exchange Commission, 2013). The mission of Sarbanes-Oxley Act of 2002 is stated in Public Law 107-204 (2002), “To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes” (p. 1). To determine if the mission of SOX is successful the following will be discussed; the main advantages and disadvantages associated with SOX, the affects SOX has on public company Chief Operating Executive’s (CEO’s) and Chief Financial Executive’s (CFO’s), the impact SOX has on outside independent audit firms...
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...Alia Rahman Sarbanes-Oxley Act of 2002 (SOX) is an act was created as a safe guard mechanism for the investor. The massive accounting fraud created by Enron and WorldCom in 2000, caused many individuals’ savings and retirement. The company falsified their earnings; disclose false report in their accounting statement, they used the investors’ money to generate personal wealth. This unlawful, unethical and negligent behavior of the company management shocks the financial world. The investor lost confidence and other company was losing their investors. The congress got involved. It was crucial to reduce this abuse and corruption with accounting practice, save the investors fund and other company. As a result the Congress created an Act called...
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...Author Note This paper was prepared for AMBA630 Economics Management Decisions, Section 9045, taught by Professor Victor Bahhouth. Executive Summary In order to avoid fraudulent reporting, the Securities Exchange Commission (SEC) has mandated that auditing for organizations must be completed by independent accountants. Today scrutiny of the accounting industry is more intense as laws are created to punish those that choose to falsify information. This paper aims to explain the importance of the Sarbanes-Oxley Act (SOX) as it relates to the internal control, Chief Executive Officers and Chief Financial Officers. We will also identify the pros and cons of the Sarbanes-Oxley Act (SOX) and changes that could be made in order to pose arguments from both sides of the act. Introduction In the early 2000’s, one of the darkest times ever experienced in the history of accounting occurred due to numerous scandals. The results of these scandals from companies lead to terrifying actions, which included the downfall of one of the largest accounting corporations, Arthur Anderson, for their help with Enron. Companies such as Enron, Tyco, and WorldCom have led to the passing of the Sarbanes-Oxley Act (SOX) due to their financial reporting scandals (Forbes, 2013). With the passing of SOX in 2002, the falsification of financial statements by companies became a criminal offense. The passing of the SOX act posed as a challenge to many companies as it enforced businesses to make ethical...
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...Kathleen M., Levick, Richard. “The Top Five Tips Every Executive Needs to Know About Sarbanes-Oxley and Corporate Ethics.” Exec Blueprints (2008): Print. The authors are law experts from various law firms who share their insights into corporate ethics, as it relates to Sarbanes-Oxley. The article begins by detailing how the Sarbanes-Oxley legislation now holds top executives criminally responsible for any public misstatements of a company’s finances. One key point that was referenced several times in this article is with the increased protection of whistleblowers that the act now provides many are now incentivized to report wrongdoing. As a result, it would behoove executives to institute a corporate compliance program and code of ethics. This was a very informative paper which provides insight into how senior management must set the tone for the organization in the standard of ethics and what is tolerated when any wrongdoing may occur. Frey, Kelly L., Taney, Francis X., Wucher, Robert. “The Top Five Tips Every Technology Executive Needs to Know About Sarbanes-Oxley.” Exec Blueprints (2008): Print. The authors, two of whom are lawyers and the other an IT executive, provide a high-level, summary overview of the Sarbanes-Oxley Act of 2002, and how it relates to decisions that every IT executive within a public company must make. Much of this document is centered on section 404 of the act, which details regulatory compliance language that these firms must now abide by....
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