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Surbanes Oxley Act 2002

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Sarbanes-Oxley Act of 2002 Analysis

Lisa Dupree

LAW 421

November 30, 2014
Miriam Gold

Sarbanes-Oxley Act of 2002 Analysis

The Sarbanes-Oxley Act was signed on the 30th day of July in year 2002 by President George W. Bush after passing through the Senate with a unanimous vote and passing through the House of Representatives with a 423-3 vote. When the Sarbanes-Oxley Act of 2002 was enacted it directly affected CPAs, CPA firms that review public organizations, publicly traded organizations, their employees, their officers, their owners, those who have “more than 10 percent of the outstanding common shares” in a publicly traded company, lawyers who work for publicly traded companies, lawyers who have publicly traded organizations as clients, traders, merchants, financial specialist, and investors who work for publicly traded companies (NYSSCPA, 2014). The SOX act created a five affiliate oversight panel that is “subject to the Securities and Exchange Commission (SEC) oversight” (NYSSCPA, 2014). The Public Company Accounting Oversight Board (PCAOB) was created to investigate, inspect, discipline public accountant firms and also enforce compliance with the SOX act. Registration with the (PCAOB) is mandatory for all CPA firms.
Lisa- The Enactment of the SOX Act
Kris- SOX and Ethical Decision Making The SOX Act was created by Congress to protect investors and companies from irresponsible accounting practices. The purpose of the SOX Act is to ensure that employees are not stealing from public companies and cheating investors out of millions of dollars like what happened at Enron. The SOX Act affects decision making by making public corporations actions transparent. Forcing public corporations to have independent audits, accurate financial reporting and internal corporate governance makes people think twice about committing fraud because they are less likely to get away with it (Melvin, 2011). Congress also created the Public Company Accounting Oversight Board, PCAOB, which is in charge of implementing and enforcing SOX mandates (Melvin, 2011). Accountability and clearly stated penalties for failing to follow the SOX Act makes unethical behavior less likely because when people fear getting caught and know the consequences of their actions they are less likely to break the rules. Employees, accountants and CEOs will follow the rules because the SOX Act makes it impossible to get away with fraud so ethical behavior is the only way to avoid fines and imprisonment.

Sugar- Implementing SOX in Business All businesses must comply with the Sarbanes-Oxley Act of 2002. While the SOX Act can appear to be daunting and cumbersome, it is in the best interest of business owners to familiarize themselves with the regulations in order to implement SOX practices, to ensure compliance. The most relevant sections of the SOX Act are sections 302, 401, 404, 409, and 802 (Sarbanes-Oxley Act 2002, 2006). These sections are indicative of a company’s due diligence of financial reporting. In section 302, the signing officers have to verify they have physically reviewed the financial reports and that they do not contain untrue statements nor are there material omissions; the reports have to fairly present the financial condition and results; the internal controls have been evaluated within the previous 90 days; and the internal control should include deficiencies, fraud, and significant changes (Sarbanes-Oxley Act 2002, 2004). Sarbanes-Oxley Act 2002 (2004) summarizes the other sections: Section 401 - indicates the “accurate financial statements must include off-balance sheet liabilities, obligations, or transactions.” Section 404 - primarily focuses on the internal control structures and processes for financial reporting, as well as assessing their effectiveness. Section 409 - specifies a company must “disclose to the public information on material changes in financial conditions or operations.” Section 802 - states the penalties for altering documents, obstructing investigations, or violating the maintenance requirements of audit papers. By becoming familiar with the important sections, it makes the implementation process easier when conducting business. The SOX Act is focused on the actions of internal controls, being ethical, and being responsible for those actions. It could be viewed as a “utilitarian stream of moral philosophy…the course of action that results in the most benefits for the most individuals is the most ethical” (Melvin, 2011, p. 105). Furthermore, according to Daly (2006), evaluating all avenues of the business, minimizing the greatest risks, moving toward processes that exercise judgment, and senior management setting the tone for compliance are sure steps in implementing and complying with the SOX Act (p. 24). Lebovits (2006) goes beyond the SOX Act by identifying these levels: cultivating ethical role models, identify and give recognition to key influencers, demonstrating ethical business decision making actions from leadership to inspire employees, and encourage employees to voice their opinion up front or anonymously (p. 69-70).
Kathleen – Criminal Penalties Provided by SOX The penalties for violating the SOX Act vary according to the action of the offender. According to “The Sarbanes-Oxley Act 2002”, Section 802 “imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. This section also imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and willfully violates the requirements of maintenance of all audit or review papers for a period of 5 years” (Addison-Hewitt Associates, 2006). Penalties may also include suspension of registered CPA status, barring the offender for associating with a registered CPA firm, and the firm being fined $2 million per violation, up to $15 million (NYSSCPA, 2014). Violating the SOX Act also includes actions such as two or more people conniving to defraud the U.S., someone that willfully “executes, or attempts to execute, a scheme to defraud a purchaser of securities”, or mail/wire fraud (NYSSCPA). The penalty for two or more people conniving to defraud is a fine and/or up to 10 years of imprisonment. Cheating a purchaser of securities will result in the same sentence. The penalty for mail/wire fraud will vary in the severity of the violation. An offender can expect fines and a sentence of 5 to 20 years imprisonment (NYSSCPA).
Tonya – SOX Success Many critics and proponents equally agree that more work needs to be done to successfully deter and punish white collar crimes. Section 901 of the Sarbanes-Oxley Act of 2002 includes an enhancement that intends to penalize individuals who attempt or conspire fraud. The enhancement is widely known as White-Collar Crime Penalty Enhancement Act of 2002 (WCCPE). The act has been successful in several crimes including backdating stock options that came to a screeching halt in 2002 after the SOX Act mandated certain reporting requirements of top executives who engage in buying or selling stock. The act has been under scrutiny as a “knee-jerk” option to deal with sentencing, deterring, and eliminating white collar crime. The gap between actual sentencing, the proposed penalties from SOX for white collar crime, and the US Sentencing Commission cannot be unnoted. While SOX implementation has deterred much of the crime by way of financial reporting and holding individuals accountable, the results have been inconsistent alongside SOX where sentencing remains focused on intended loss as opposed to actual loss (Harvard, 2009).
Keith -Conclusion

Addison-Hewitt Associates. (2006). Sarbanes-Oxley Act 2002. Retrieved from SOX Law:
Daly, M. (2006). From Socrates to Sarbanes-Oxley: The ethics conundrum. ABA Trust & Investments, 112; 16-24. Retrieved November 2014, from
Harvard. (2009). Go Directly to Jail: White collar sentencing after the Sarbanes-Oxley Act. Harvard Business Review, 1729.
Lebovits, N. S. (2006). Beyond Sarbanes-Oxley. Journal of Accountancy, 69-70. Retrieved November 2014, from
Melvin, S. P. (2011). The legal environment of business: A managerial approach: Theory to Practice. New York: McGraw Hill/Irwin.
NYSSCPA. (2014, November 29). The Sarbanes-Oxley Act of 2002. Retrieved from The Web Site of the New York State Society of CPA's:

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