Premium Essay

Is Sox Working?

In: Business and Management

Submitted By shanec44
Words 663
Pages 3
Shane Connolly
Journal Article
ACT 301
December 17, 2014

Is The Sarbanes-Oxley Act Working?

This article written by Stephen D. Willits and Curtis Nicholls was printed in the CPA journal in April of this year. To give a brief history of SOX after the corporate fraud in the early 2000’s the SEC felt pressure to respond. Their response to the fraud committed my giant corporations such as Enron and WorldCom was the Sarbanes-Oxley Act. The main point of SOX was to try to limit or ideally eliminate corporate fraud by cracking down on self-regulating audit. The answer as to whether SOX is working or not is not as simple as yes or no. Some say that the scope of SOX was too wide while others maintain that it did not go far enough. The basis for the success of SOX comes down to cost versus benefit. Section 404 of SOX seems to have drawn the greatest criticism. Section 404 states that companies must issue reports concerning the internal control structure and the procedures for financial reporting. The purpose of this section was assessing the internal control and procedures of any company. The problem was the cost. Shortly after SOX was enacted companies (depending on size) report spending between 4 and 10 million dollars in order to comply with section 404. This number was expected to decrease as companies adjusted to the new laws; however there have been conflicting reports as to whether that has come to fruition. In respond to the political pressure the SEC was facing regarding section 404 they replaced it with a more relaxed version in 2007. The SEC went even further in 2010 by exempting smaller companies (less the 75 million in public float) from complying with section 404(b). One more step was taken in 2012 with the JOBS Act, which allowed companies grossing less than a billion dollars to also not follow section 404(b). One of the main criticisms for SOX…...

Similar Documents

Premium Essay

Act/561 Sox Act

...corporation (KPMG Forensic, 2006). The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act (SOX) was created by Congress to alleviate the corruption and scandals in corporations. According to TechTarget (2013), “The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation enacted in response to the high-profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. The act is administered by the Securities and Exchange Commission (SEC), which sets deadlines for compliance and publishes rules on requirements.” The SOX act is designed to specify how businesses should store records for a specific time. The SOX act affects both financial and IT departments in corporations, regarding the storage of electronic records. The SOX act states that corporations must save records for as many as five years (TargetTech, 2013). There are steep penalties for businesses who do not abide by this act, resulting in heavy fines and imprisonment. When George Bush signed the SOX act into law, which he characterized as “the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt” mandated many reforms to enhance the responsibility within corporations, financial disclosures, combat corporate, and accounting fraud (U.S. Securities and Exchange Commission, 2012). The SOX act created the Public Company Accounting Oversight Board, also known as......

Words: 976 - Pages: 4

Premium Essay

Effectiveness of Sox Act

...The effectiveness of the Sarbanes Oxley Act 2002 The financial scandals of Enron, WorldCom and some other large companies in the beginning of this century, encouraged Congress to introduce the Sarbanes Oxley Act (SOX) 2002 in order to fight the escalating commitment of financial statement fraud. The main objective of this legislation was to recover the investors’ trust in the American stock market, and enhancing the prevention and detection of corporate fraud. In this thesis I would like to analyze the effectiveness of SOX 2002 in preventing financial statement fraud, corporate governance characteristics and effective internal control systems. Finally, the results of the study showed that SOX has not been able to prevent or reduce the likelihood of financial statement fraud. Introduction Since the last 20 years the global economy has been facing a dramatic flow of accounting scandals committed by CEOs and managers of prestigious entities known all around the world. One of the most notorious fraud cases in the last decade was that of Enron where debts were hidden, revenues were inflated and the presence of corruption was uncovered. Other similar cases that also battered the accounting world were those of Adelphia Communications and Global, WorldCom, Parmalat, AIG and Tyco International. Most of these scandals took place during the latter years of the previous century and in the beginning of 2000. These actions obviously triggered a high level of uncertainty......

Words: 1329 - Pages: 6

Premium Essay

Sox of 2002

...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......

Words: 4177 - Pages: 17

Free Essay

Law Sox

... Sarbanes-Oxley Act (Sox Act) 2002 Student’s Name Institutional attachment The Sarbanes Oxley [sox] Act of 2002 made a significant move in the administrative environment of publically exchanged organizations. Because of a becoming number of corporate misrepresentation outrages, for example, Enron and Tyco universal, the united state congress passed the law in a push to decrease the likelihood of future extortion. The law requires more compressive monetary reporting necessities and upholds stricter punishments on the individuals who occupied with plans to swindle financial specialists. Then again, there are numerous adversaries to the law who accept the regulations are unnecessary and excessively excessive for generally organizations. With the end goal of this paper, I will dissect an article title "The Law change corporate" by Michael peregrine, which traces the some significant impacts of the law. The creator is a corporate legal counselor and has abnormal state of experience dealing with agreeability issues with open organizations. Generally, Michael accepts that SOX has been very fruitful. The most vital impact clarified in this article is focused on the structure of corporate legislation. He expressed that SOX seized the focused of corporate course from the corner of the workplace and returned it the meeting room, where it had a place. Besides the law empowered the recognizable proof of the best practices to guide meeting room conduct....

Words: 775 - Pages: 4

Free Essay

Changes to Sox

...Possible Changes to SOX Although SOX has improved firms’ financial reporting, additional modifications could make SOX more effective. Adjustments could be made that will encourage better composition and performance of corporate boards, improve safeguards for whistleblowers, and enhance management accountability as well as the function of the PCAOB. Although SOX put in significant provisions to improve corporate governance, which included the establishment of audit committees that had independent directors, there is room for improvement. One potential measure is to set term limits for directors, which would ensure that fresh eyes are reviewing business practices . Another measure is to limit the number of public company boards an individual could serve on, which would ensure that board members are not focusing on too many different companies. It is possible that these recommendations will constitute regulatory overreach. At minimum there could be measures that require continuing education for board members so that they remain current in their knowledge of best corporate practices. Another weakness of the bill is that it does not provide protection for auditors who want to report fraud but worry about potential retaliation. Legislation could be created, requiring that no auditors can be fired unless a super majority of the shareholders approves it or the SEC allows it (Livingstone, 2003). In addition, the law already requires that a confidential reporting system is......

Words: 485 - Pages: 2

Premium Essay

Sox Compliance Solution

... SOX Compliance Solution ***************** CMGT 16FEB2015 ******** SOX Compliance Solution The following Memo is to address the issue of organizing training for all company management personal, in the training of MetricStream© a software solution to The Sarbanes-Oxley Act (SOX). The Memo will address the main issue and how the training will be provided. The memo will also address how the company will be able to measure how successful the training was, and any problems that will be needed to be address had the company decided to conduct any future training sessions. MEMORANDUM TO: All Managers FROM: Head Office DATE: February 16, 2015 SUBJECT: SOX Compliance Solution Compliance to the Sarbanes-Oxley Act is mandatory and requires the financial reports are accurate and reviewed by internal auditors to ensure accountability ("The Sarbanes-Oxley Act ", 2006). To ensure adherence to the SOX requirements and in order to streamline the process while reducing cost at the same time; the company has decided to implement MetricStream© as a software solution for managing the requirements of the act. MetricStream© not only provides tools for the management of internal auditing and reporting process, but also provides a way to show evidence of report findings. This tool also provides collaborative assistance tools to streamline the underlining process required by section 302 of SOX (MetricStream, Inc, 2015). The training required as part of the......

Words: 526 - Pages: 3

Premium Essay

Sox Discussion

...Auditing Principles and Procedures ACC2366 Section311 SOX Discussion Question: Section 302 of the Sarbanes-Oxley Act states that senior management must certify the accuracy of the financial statements produced by that accounting firm.  How will this section of the act affect senior management’s cautiousness before signing off on the financial statements?  Do you think this mandate will encourage more ethical people in senior management roles? Why?  Which major corporation that we’ve studied recently had issues with management signing off on their financial statements?  Why did they refuse to sign off on them? Under section 302 of the Sarbanes-Oxley Act signing officers are responsible for various duties to ensure the final statements are fairly represented and not misleading to its users. Before management signs off on financial statements they have to be reviewed. They also have to ensure internal controls in place have been evaluated and effective within 90 days prior to the report being issued. According to the Sarbanes-Oxley Act, “the signing officers have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared” (Sarbanes Oxley Act, 2012, s302). The act requires management to disclose these controls in their financial statements. Officers must also disclose...

Words: 462 - Pages: 2

Premium Essay

Sox Regulations

...The Impact of Sarbanes-Oxley Act of 2002 on Accounting and Finance Departments Danika Grace Brown Lakeland College Kellett School of Business – BlendEd BA 772 Advanced Industrial Accounting II Instructor Mary Diederich March 10, 2015 Table of Contents Abstract 2 Overview of the Sarbanes-Oxley Act of 2002 3 About SOX 4 Reporting and Compliance 5 Risk Assessment and Control 6 Interview at Company X 7 Standards for Corporations and Officers 8 Auditing and Financial Reporting 9 Future Impact of SOX 10 Conclusion 11 References 13 Abstract Sarbanes-Oxley is the response from Congress in regards to the financial industry collapse that happened over a decade ago. Due to unethical reporting from corporations, Sarbanes-Oxley (SOX) is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. As a result of SOX, top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Furthermore, SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements. This paper will look to provide an oversight of the law and how it pertains to the standards in Accounting and Finance departments nowadays. In addition, this paper will also touch on the ongoing costs and benefits of the now......

Words: 3586 - Pages: 15

Premium Essay

Sox Anaylzation

...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......

Words: 3587 - Pages: 15

Premium Essay

Sox Act

...1. Researched instance of whistleblowing in one (1) publicly traded company. Playboy Enterprises Inc. previous Controller Catherine Zulfer occupation was ended since she protested a shameful (illegal) guideline by Playboy's CFO to collect $1 million in optional rewards for officials when those rewards had not been endorsed by Playboy's Board. A jury concurred and found that Playboy unlawfully struck back against Zulfer by terminating her for her secured reports under SOX furthermore fired her, violating public policy under California law. The jury recompensed $6 million in unspecified harms with no designation between the SOX claim and the California wrongful termination claim. 2. Decide whether or not the whistleblower was justified in reporting the company’s actions. Provide a rationale for your response. I believe that Ms. Catherine Zulfer, who trusted all bonuses and rewards must be affirmed by the board of directors, blew the whistle on company CFO Pachler's alleged scheme to the Securities and Exchange Commission and Playboy's investors and shareholders. Also Ms. Zulfer states in her claim that she was to a great degree worried that CFO Pachler and CEO Scott Flanders were endeavoring to viably steal, take or change over Playboy assets which she believed Pachler's solicitations was "untrustworthy to shareholders." After she reported those shames, she was on New Year's Eve 2011, a demonstration she calls only a "guise for what really was countering" against......

Words: 481 - Pages: 2

Free Essay

Sox Affect of Dcaa

...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...

Words: 1941 - Pages: 8

Premium Essay

Sox Reaserch

...Sarbanes-Oxley Act of 2002 SE584: Forensic and Business Investigations Techniques February 22, 2009 The passage of the Sarbanes-Oxley Act of 2002 (SOX) changed how accounting is practiced and how corporations handle their accounting departments, to include auditing and internal controls. Some of these changes are for better accountability and some are for governing the application of stricter rules. The accounting profession was dramatically affected by the events leading up to and after the passing of this law. In the days before SOX, there were many high valued fraudulent activities. The news was flooded with employees, managers, and executives who were committing fraud against their investors, their organizations, or both. Millions and billions of dollars were being lost. The acts that brought about SOX began many years before its inception but were especially prevalent during the dot-com boom. These company’s executives fraudulently reported increases in revenue dollars, bringing their net income up in order to keep pace with their growth projected by analysts. The collapse of these “fast and furious” companies did not mean the last of the major fraudulent activities by executives against organizations or their investors. The 1990s was a time that saw many changes affecting business. The Internet was beginning to open more to commercial use, no more was it just for academics and the government. The age of technology that had started in the 1960s truly took off.......

Words: 3558 - Pages: 15

Premium Essay

The Sox

...The Sarbanes-Oxley Act (SOX) was the result of innumerable corporate scandals such as Enron, WorldCom and Tyco. These companies were misrepresenting their financial reporting to investors and stakeholders to make themselves look more financially stable when in reality they were not. This misrepresentation resulted in huge financial losses and the mistrust of investors in the market. In order to better control financial reporting and restore investors trust, the SOX act was passed. Sarbanes-Oxley aims to enhance corporate governance and strengthen corporate accountability. It does that by: • formalizing and strengthening internal checks and balances within corporations • instituting various new levels of control and sign-off designed to • ensure that financial reporting exercises full disclosure • Corporate governance is transacted with full transparency. (Sarbanes-Oxley Essential Information) The Sarbanes-Oxley Act implemented new standards for financial reporting accountability in a way that CEOS could not pass on the blame to others. They cannot hide behind the “I was not aware of the company’s financial issues “reason anymore. Executives are now held responsible for any financial misrepresentation in their companies’ reporting. They are also held accountable for the design and implementation of new internal control to validate their financial records. Thus, they are responsible of making sure that an internal control report as well as an internal control......

Words: 849 - Pages: 4

Premium Essay

Sox on Indian Country?? What???

...Abstract The Sarbanes Oxley Act (SOX) has become one of the most important legislative passages since 2002 that has affected the accounting industry. The purpose of this paper is to explore the business practices on Native American Indian reservations and incorporating the Sarbanes Oxley Act (SOX) in to their business administrative policies and procedure plans. The results of this report will provide an initial starting point for chief executive officers and business entreputers on reservations to better understand the importance to incorporate this legislative act so ethical practices can begin to have changes in the business environments. It will further explain that due to the high degree of influence, professionals should follow a strict code of ethics, and I will review the code of ethics established by the Institute of Managerial Accounting. I will use observations, articles, and peer reviewed sources. There is a need for fiduciary educational change that is necessary with respect to how individual employees conduct their business practices that operate on the Indian reservations throughout Indian country. Various Indian organizations operating have experienced an increase of unethical business practices. This changes deals with meeting the challenge of addressing current events and new regulations that need to be established on reservations. In 2010, a report by Sue Woodrow entitled, “Ethics as a building block of economic growth: Global......

Words: 2290 - Pages: 10

Premium Essay

The Sox Act

...The SOX Act The SOX Act Paul Sarbanes a senator and a Representative Michael Oxley in 2002 created the Sarbanes-Oxley Act, also known as the SOX Act. These people drafted this act to protect public companies by regulating the truthfulness along with the consistency of financial accounts. The SOX Act put in place new rules and laws for corporate accountability as well as new penalties. It changed how corporate boards and executives interacted with these auditors. It eliminated the excuses from chief executive officers and chief financial officers. Instead it held them liable for the correctness of financial statements. The SOX Act specifies new financial reporting responsibilities, including accuracy regarding new in-house controls and measures designed to ensure the reliability of their financial records. The SOX Act requires financial reports to include an internal control report. It is designed to show that not only are the company's financial data correct but also the company has confidence in them because satisfactory controls are in place to protect financial data. Financial reports must contain an evaluation of the success of the internal controls. The auditing firms are required to confirm to that assessment. The auditing firm does this after reviewing controls, policies, and procedures during a Section 4040 audit, conducted along with an established financial audit. Roles that ethics plays in business today with the SOX Act......

Words: 726 - Pages: 3