...Introduction Authored in the wake of the Enron and WorldCom scandal, The Sarbanes-Oxley Act was enacted in 2002, to keep public entities from committing fraudulent financial practices. The name Sarbanes-Oxley derives from former Senator Paul Sarbanes and former Representative Michael Oxley. “The Sarbanes-Oxley Act (SOX) was signed into law by President Bush on July 30, 2002, and created a new private sector, nonprofit corporation-the Public Company Accounting Oversight Board (PCAOB)-to oversee the financial reporting of public companies. Among other changes, SOX's sweeping reforms required that a company strengthen auditor independence; have its chief executives sign off on the financial statements; obtain an opinion about its internal control systems; and have an internal audit function that is examined by external auditors” (Grumet, 2007). Part A Audit Committees The Sarbanes-Oxley Act affects audit committees of public company boards of directors. The committee of the board of directors is directly responsible for the public company financial statements, in addition to the appointment, compensation, and oversight of the work of any registered public accounting firm employed by that issuer. In the case of misunderstanding between management team and the auditor’s regarding financial reporting, it is the audit committee’s responsibility to get everyone involved on the same page. In addition, the audit committees need to monitor all financial information communicated...
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...Running head: THE SARBANES-OXLEY ACT: A REVIEW OF THE LITERATURE 1 The Sarbanes-Oxley Act Matthew Gurniak University of Maryland University College Author Note This paper was prepared for AMBA 630, Section 9046, taught by Professor Wylie. Introduction American investors lost confidence in the American market, as a result of several large companies falsifying financial statements. In response to this matter, Congress passed the Sarbanes-Oxley Act (SOX) in the year of 2002 (Rehbein, 2010, p.90). Though there are many benefits that have come out of SOX, many argue that there are several issues that should be addressed. As a team we will discuss the main advantages and disadvantages of the act, the effect the act has had on CEO’s and CFO’s of publicly held companies, how the act has affected the function of internal controls within organizations, and what changes should be made to act. What Are the Main Advantages and Disadvantages of SOX? The Sarbanes-Oxley Act (SOX) has many advantages. There are repeated ethical scandals in business and the majority of the time “ethics and the law run parallel” to each other (Livingstone, 2009, P. 4). The SOX is the first step in holding companies accountable and is a model for accounting practice reform. The SOX controls auditors’ independence and responsibility by fighting business fraud and improving corporate governance. Tsui (2009) stated that “the SOX increases personal liabilities of senior management...
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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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...Group 2 Assignment: The Sarbanes-Oxley Act (SOX) & Financial Statements Accuracy University of Maryland University College Geralda Francois Courtney Holbrook Nicole Mone Walker Moyosore Bankole AMBA630 Mark Wylie August 18, 2015 Introduction The United States Securities and Exchange Commission (SEC) was created after the Great Depression of the 1930’s, and given a mandate to oversee US financial markets. Since then its basic policy has been to promote transparency in corporate finance, through the full disclosure of companies’ financial performances. This allowed the SEC to maintain a strong track record of corporate financial disclosure oversight through the 1990’s, when a period of rapid stock market growth and crashes rocked the system (Introduction to SOX, n.d). During that period, companies such as Enron and Sunbeam Corporation abruptly filed for bankruptcy or devalued overnight. This occurred largely because they concealed the real state of their financial health on audit reports (Livingston, 2003, p.7). In response to these scandals the US Congress passed the Sarbanes-Oxley Act of 2002 (SOX). Many of the provisions in SOX give additional powers to the SEC, including jurisdiction over the new Public Accounting Oversight Board and oversight over private industry Generally Accepted Accounting Principles (GAAP), and Generally Accepted Auditing Standards (GAAS). Moreover, U.S. public company CEOs and CFOs must certify the accuracy of financial statements...
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...THE SARBANES OXLEY ACT of 2002 The Sarbanes Oxley Act of 2002 was signed into law after a series of corporate financial scandals affected companies such as Enron, WorldCom, and Arthur Anderson. It provides a solid set of government rules that will discourage and punish corporate and accounting fraud and corruption by imposing severe penalties for wrongdoers, while protecting the interest of workers and shareholders. Acknowledged as the most significant change to securities laws since 1934, the Sarbanes Oxley Act, a new penal law, 18 U.S.C. $1348, became effective on July 30, 2002. The Act contains reforms for issuers of publicly traded securities, corporate board members, auditors, and lawyers. It was designed to improve the quality of financial reporting, accounting services, and independent audits (Zameeruddin, 2005). The provisions of the act apply to U.S. companies that are required to file annual reports with the Securities and Exchange Commission (SEC) as well as foreign companies that that are listed in the U.S. or are obligated to report to the SEC periodically. Title I of the Sarbanes Oxley Act stipulates that a new Public Company Accounting Oversight Board will be appointed and overseen by the SEC. The Board, which is made up of five full-time members, will oversee and investigate the audits and auditors of public companies and penalize for violations of laws, regulations, and rules. It is funded by fees to be paid by all public companies...
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...Unethical Behavior Article Analysis ACC/291 The Sarbanes Oxley Act was passed as a result of plenty of corporate scandals. The purpose of this act was to protect investors and to provide them with accurate and reliable information, and to disclose all information that can affect an investor’s decision. It was passed to restore the confidence of investors. The Sarbanes Oxley Act has impacted financial statements in several ways. The act has asked that independent firms should audit the financial statements in which positions of the auditors should be rotated from time to time, so that fraud cannot be hidden by the same auditor year after year. Section 303 of the act requires senior management to certify the accuracy and reliability of financial statements. The Sarbanes Oxley Act requires that the financial statements of the company must be signed off by the CEO and CFO of the company. Executives will be held responsible for any accounting irregularities by signing authentic documentation they are fully aware of the accounting rules and regulations and that they will be held accountable for any simple inept errors or deliberate fraud, reckless breach of fiduciary duty, blatant negligence, scheming to defraud, and so on. The SOX act has made CEO’s and CFO’s more responsible, thus, they (CEO’s and CFO’s) must certify that they have reviewed the financial statements of the company and that the statements are true to the best of their...
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...Sarbanes Oxley Act of 2002 Daniel Alvalle BUS 670 Legal Environment Instructor: Peter McCann 7/29/2013 If you were an investor would you want your money protected? Would you be skeptical about investing in companies since the securities fraud scandals that have happened recently? The answer is most likely, “yes”, to a certain degree. With the news about unethical business practices and companies not following regulatory guidelines, it is difficult to ignore the risk that is involved with trusting someone else with your investment. But there is an answer to help protect companies and shareholder, and it comes in the form of a regulatory organization that was put in place in 2002. That was put in place as a direct response to the corporate scandals of Enron and other scandals that followed, and was also put in place to help restore confidence in the financial market. SOX-Applies only to US companies on the US exchange, and is an Act put in place in 2002 to mandate all publicly traded corporations to maintain adequate internal control. SOX basically make sure that all US publicly traded corporation do what is in the best interest to protect the investment of stockholders. SOX-Sarbanes-Oxley Act of 2002 is an ACT that was put in place where all publicly traded U.S. corporations are required to follow certain guidelines and requirements. Basically, these systems were put in place because of securities fraud issues that came to light in the early 2000’s, and are...
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...Accounting: Accounting Fraud at WorldCom Date: 1/26/2015 3. What are the pressures that lead executives and managers to "cook the books"? The CEO and CFO of WorldCom wanted to “cook the books” because they wanted to keep the company’s stock price growing. Managers and accountants “cook the books” because they are forced to do so by their CEO and CFO. WolrldCom CEO Ebbers believed that increasing the stock price is their number one priority, so he set up a goal for the corporation--“The goal of WorldCom is to be the No.1 stock price on Wall Street”. In the 1990s, WorldCom built their revenues quickly by acquiring other companies. That’s how they do to meet their expected growth. However, when they tried to merger Spring, they were blocked by the Justice Department. When they failed to expand their company by merging other companies, the executive team got lost and not sure how to expand the company in a legal way. As a result, WorldCom’s revenue growth slowed. At the same time, the Dot-com bubble started to burse, so the revenue for the whole telecommunication industry begun to decrease. However, Ebbers wanted to remain the same Expense-to-Revenue Ratio to ensure stock price moving in favorable direction. Which was impossible at that time for WorldCom to fulfill without making the number up. Therefore, the executives decided to “cook the book” to increase the stock price and meet their goal by making the false entries. For the accountant, they are...
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...Introduction The Sarbanes-Oxley Act (SOX) was signed into law in July 2002 with the goal of improving the scope of declared information and the rectitude of financial statements of U.S. publicly traded companies through increasing their reporting standards, the implementation of independent audits, and the institution of steep penalties for corporate executives who submit fallacious filings (Botes, 2012). These actions provide increased investor assurance of the accuracy of public financial filings through improving their reliability and breadth of disclosure (Botes, 2012). The following report shows how the Act has impacted outside independent audit firms, the accuracy of public company financial statements and the cost of capital for public companies. The report further discusses the main advantages and disadvantages of the law, what changes should be made to it, and why the legislation cannot guarantee the accuracy of public company financial statements despite the attention CEOs and CFOs are paying to the law. Outside Independent Audit Firms Under SOX independent audit firms perform audit reviews of financial filings, in accordance with the Generally Accepted Accounting Principles (GAAP), and under the direction of the Public Company Oversight Accounting Board (PCOAB), in order to assure the disclosure and accuracy of financial filings (Livingstone, 2003; Botes, 2012). Botes notes these reviews provide a uniform platform for sound financial reporting and act as a deterrent...
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...Sarbanes-Oxley Act.2002 Darrell Kelley LAW/412 June 27,2013 Mark Reed Sarbanes-Oxley Act.2002 In this essay one will be discussing Enron, the illegal activity of Enron and the establishment of the Sarbanes-Oxley act 2002. Also one Discusses the ethical views in todays business world and the criminal penalties that the Sarbanes-Oxley Act provides Enron was an American energy business in commodities and services company based out of Houston, Texas. Enron was a rapid growing corporation that organization goal was in producing natural gases, communications, electricity, pulp and paper with was once believed to have had employed approximately over 18,000 employees (Frontain). With monopolizing in such resource ventures Enron was once believed to have made well over 100 hundred billion dollars in revenue. In the height of Enron’s success of banking in million of dollars through out their empire there were also faulty accounting be done internally. Thousand to millions of dollars being signed off to hire up E of the company leading to questioning of the money (Frontain), account scandals and audits. By the early 2000’s Enron was in over their head in fraudulent financial documents, having less than enough funds to payback what was owed, as well keeping employees on payroll Enron made the move of filing bankruptcy leaving whatever ethical, moral responsibility they have had abandoned. With Enron’s fraudulent financial secrets and bankruptcy being brought...
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...scandals that have impacted companies all over the world have led to the re-examination of the role of corporate governance in their day to day operations. The Organization of Economic Cooperation and Development (OECD, April 1999) defines corporate governance as follows: "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.” (Hebbie A., Ramaswamy V., 2005) Some corporate governance problems, as for example CEO’s almightiness, Board of Director competencies, shareholders interests, etc, become important only when some organization gets...
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...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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...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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...Sarbanes-Oxley The Sarbanes-Oxley act of 2002 is a law passed to control financial scandals such as Enron and WorldCom, and restore investor confidence. Sarbanes-Oxley, or SOX as many people call it, was considered a significant change to federal securities law, but at the time, the costs were unknown. Today after nine years, companies have realized that the costs of this act are not be stopping the fraud as originally expected, and it is having some unintended consequences to the securities industry. The most important, and possibly the most costly parts of this act are corporate responsibility, increased internal controls, new auditing requirements, privatization of businesses, and the reaction to this act by foreign entities. Title I & II– Public Company Accounting Oversight Board and Auditor Independence The act established the Public Company Accounting Oversight Board (PCAOB), which was placed in charge of developing and enforcing professional standards, ethics, and competence of accounting professionals providing services to publicly traded companies. The PCAOB recently announced its budget for 2011 would be $204.4 million to perform these duties (Financial News, 2010). One of their guidelines is that public accounting firms that provide audit services to public companies can no longer provide any bookkeeping, consulting, actuarial, or investment services that may interfere with their objective findings in an audit, and to guarantee auditor independence the act provides...
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...Abstract This research paper explores the creation of the Sarbanes-Oxley Act (SOX) and the role Enron played in its enactment. Specifically, this paper will explore and discuss the Enron crisis, emphasizing the legal and ethical accounting breaches committed by the company. The purpose of SOX and the methods used to address those breaches. A discussion of the major provisions of the act including: (1) Establishment of the Oversight Board commonly referred to as the Public Company Accounting Oversight Board (PCAOB) (2) Restrictions on non-audit services (3) Rotation of audit partners (4) Auditor reports to audit committees (5) conflicts of interests (6) CEO and CFO certification of annual and quarterly reports and (7) Internal control report and auditor attestation. The necessary requirements concerning internal control for public companies. A discussion of the types of services considered unlawful if provided to a publicly held company by its auditor. A discussion of the broader impact of the act on auditors. Lastly, a discussion from the legal and ethical viewpoint of the level of success the act has had in preventing cases such as Enron. The Sarbanes-Oxley Act and Enron In any contemporary discussion of corporate governance and the erosion of trust in business, one name is unavoidable: Enron. Enron has become an icon for corporate fraud on a massive scale going to the top of the corporate hierarchy. In any attempt to restore trust, two points will have to be acknowledged...
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