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Sox of 2002

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Submitted By dlmitche
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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 how likely Section 404 of the Sarbanes-Oxley Act would affect internal controls of public companies within the United States. Consideration is given to the size of the company by way of market value and the possible impact of both sections 404 (a) and 404 (b) of the Sarbanes-Oxley Act. Section 404 (a) requires management to disclose its responsibility to establish internal controls to help...

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