...A Primer on Sarbanes-Oxley The Sarbanes-Oxley Act was declared a law in 2002 (Orin, 2008). The primary purpose of this new law was to convey meaning to restoring faith in corporate America’s financial endeavors (Orin, 2008). The Sarbanes-Oxley Act was meant to aid and protect investors, who suffered extreme losses because of corporations having poor financial performances, which was the case before the law was enacted (Orin, 2008). Distinctively, the Sarbanes-Oxley Act was meant to concentrate on accounting fraudulence by holding corporations accountable for disclosing accurate and reliable financial records. The Sarbanes-Oxley Act was also meant to ensure corporate executive leadership acted ethically throughout daily business (Orin, 2008). Assess the Effectiveness of SOX Legislations Key Ethical Components of the SOX To efficiently and effectively implement the Sarbanes-Oxley Act corporations need to broaden their views and focus on the greater purpose of the Sarbanes-Oxley Act. Beasley and Hermanson (2009) believe to accomplish this corporate leadership need to focus on the following: • Value the purpose of the Sarbanes-Oxley Act. • Comprehend the effect of fraudulence behavior. • Concentrate on ethical attitudes pertaining to rationalizing fraudulence behavior. • Making the Sarbanes Oxley Act the foundation to compliance to improve governance and control. • Investigate and implement enterprise risk management (para 5). Value...
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...“Sarbanes-Oxley (SOX) Act and its impact on corporate America” In order to understand why the Sarbanes-Oxley Act came to be, it’s important to acknowledge some of the mistakes made by some companies that led to the creation of this Act. The Sarbanes-Oxley Act was originally enacted in the wake of the Enron scandal, but then pushed to congress after a series of high-profile financial scandals followed Enron, including WorldCom and Tyco that rattled investor confidence and the level of confidence that the public held in corporate America (Rouse). Enron Corporation was one of the largest energy companies in the world, marketing primarily electricity and natural gas but also provided financial risk management for its clients. Enron’s demise began in 1997 when it bought out a partner’s stake in a company (JEDI) and in turn sold that stake to another company (ChewCo) which was created, owned, and operated by Enron (Rouse). This began the multi-layered strategy of transactions that allowed the company to hide debts, report inaccurate accounting errors, making the company appear much stronger and financially sound than it was in reality (Rouse). The Sarbanes-Oxley Act was created in 2002 by Senator Paul Sarbanes and Representative Michael Oxley and signed off by President Busch and introduced and enforced major changes to the regulation of corporate governance and financial practice. The Sarbanes-Oxley Act is arranged into eleven 'titles' (www.soxlaw.com). As far as compliance is...
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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 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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...The Sarbanes-Oxley Act 1. Analyze the new or enhanced standards for all U.S. public company boards, managements, and public accounting firms that the SOX required. The Sarbanes-Oxley Act of two thousand two was an important act for business and investors. Before the act many companies were doing unethical and illegal business practices. Accounting officers were not being held accountable for their actions that effect investors and stocks. This act was introduced to keep accounting information honest and without untrue statements or omissions. The legislation was enforced in 2002 to regulate financial practice and corporate governance. The act was named after Senator Paul Sarbanes and Representative Michael Oxley it contains eleven titles. Numerous inventors and business owners sensed that these disingenuous documents were the consequence of business carelessness in addition to deficient in of appropriate examination of fiscal proceedings by qualified auditors. 2. Examine why the new enhanced standards are necessary. I believe that the new enhanced standards are necessary. The new standards hold officers accountable for their actions and pertain to “Corporate Responsibility for Financial Reports”. In Section three hundred two of the act of periodic statutory financial reports have to include certifications assigning officer or officers have reviewed the report. The report does not contain any untrue statements or material omission...
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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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...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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...Sarbanes-Oxley Act Sarbanes-Oxley is a United States federal law, which is also known as the public company accounting reform and investors protection act and corporate and auditing accountability and responsibility act. Sarbox or Sox are shorter names given to the company. Paul Sarbanes (US Senator) and Michael G. Oxley (US Representative) are the ones who support this act. This act is intended to protect investors by improving the precision and consistency of corporate disclosures made pursuant to the security law. It is also there to strengthen audit committees and to create responsibilities for publicity traded corporations, accounting firms and regulatory agencies. This Act is consisted of 11 titles and each one of those titles describes one or more requirements to follow. So in all the aim of this act is to create better Visual in accounting and greater accountability for corporate executives. The Sarbanes-Oxley Act created new standards for corporate accountability as well as new penalties for acts of wrongdoing. It changes how corporate boards and executives must interact with each other and with corporate auditors. It removes the defense of "I wasn't aware of financial issues" from CEOs and CFOs, holding them accountable for the accuracy of financial statements. The Act specifies new financial reporting responsibilities, including adherence to new internal controls and procedures designed to ensure the validity of their financial records. The Act requires...
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...The Sarbanes-Oxley Act, also known as SOX, was legislated in 2002. This legislation was enacted mainly to protect shareholders and the general public from accounting malpractices and frauds in the business houses. The Sarbanes-Oxley Act came into force mainly due to financial scandels committed. After its enforcement, the accounting syster and financial statements exposed by the companies made progress. The Sarbanes-Oxley Act raises the standards of corporate transparency and accountability. The Act comply a responsibility over CFO and CEO to maintain an open and honest relationship with the shareholders of the corporation. Sarbanes-Oxley Act is a tool to help the directors and officers of the public corporations to do the job they have been hired to do and to do it honestly. This Act is consisted of eleven titles and each one of those titles describes one or more requirements to follow. So in all the aim of this Act is to create a better visual in accounting and greater accountability for corporate executives. The Act specifies new financial reporting responsibilities, including adherence to new internal controls and procedures designed to ensure the validity of their financial records. The Act requires all financial reports to include an internal control report. This is designed to show that not only are the company's financial data accurate, but the company has confidence in them because adequate controls are in place to safeguard financial data. Year-end financial...
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...Two provisions of the Sarbanes-Oxley Act: Sarbanes–Oxley Section 302: This section deals with disclosure controls. Under Sarbanes–Oxley, two separate sections came into effect, one civil (Section 302) and the other criminal (Section 906). Section 302 of the Act mandates a set of internal procedures designed to ensure accurate financial disclosure. The signing officers must certify that they are responsible for establishing and maintaining internal controls and have designed such internal controls to ensure that material information relating to the company 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 Section 401: This section deals with disclosures in periodic reports which include off-balance sheet items. Sarbanes-Oxley required the disclosure of all material off-balance sheet items. It also required an SEC study and report to better understand the extent of usage of such instruments and whether accounting principles adequately addressed these instruments. Critics argued the SEC did not take adequate steps to regulate and monitor this activity. SOX has improved investor confidence and has facilitated more accurate and reliable financial statements. The CEO and CFO are now required to unequivocally take ownership for their financial statements under Section 302, which was not the case prior to SOX. Further, auditor conflicts...
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...Sarbanes-Oxley Act of 2002 I. Introduction The Sarbanes–Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. 745, enacted July 30, 2002), also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act does not apply to privately held companies. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Harvey Pitt, the 26th chairman of the Securities and Exchange Commission (SEC), led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public...
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...“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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...of the Enron and WorldCom, Congress enacted the Sarbanes-Oxley Act of 2002. The Act is considered by many to be the most important legislation affecting the auditing profession since the 1933 and 1934 Securities Acts (Arens, 2010). The Act also established the Public Company Accounting Oversight Board (PCAOB). The PCAOB provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits, and performs inspections of the quality controls at audit firms performing those audits (Arens, 2010). But the question is, are these regulations effective against corporate fraud and protecting investors? It is my opinion that the most important sections of the Sarbanes-Oxley Act are sections 302, 404, and 802. Section 302 holds a company’s CEO and CFO accountable for their financial reports. They must sign off on the financial reports stating that they have reviewed the report and that the report does not contain any untrue information or omissions. I firmly believe that this section is effective, CEOs and CFOs can no longer “turn a blind eye” or use the excuse that they didn’t know what was going on in their company. Section 404 pertains to the assessment of a company’s internal controls. The auditing firm of a public company must attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting (Sarbanes-Oxley Act 2002). Section 404 also requires management to...
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...Impact: 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...
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...I do feel that Sarbanes-Oxley Act of 2002 was the right reaction to the accounting scandals associated with Enron and Worldcom and in light of 2008-2009 accounting scandals. I feel that think that Sarbanes Oxley has been effective in establishing a solid set of boundaries and expectations pertaining to corporate lawyers regarding ethical standards. Regulations have been instilled to establish protection for both businesses and the public in regards to unethical practitioners (Salem, 2003). Risk can be more effectively managed by implementing ethical standards to adhere to the protection of those for which gatekeepers serve. The Sarbanes-Oxley Act provides a board to address the quality to which auditing issues may arise. The actions of corporate...
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