Premium Essay

The Impact of the Sarbanes-Oxley Act on Auditing

In: Business and Management

Submitted By sjkolarik
Words 1522
Pages 7
The Impact of the Sarbanes-Oxley Act on Auditing

Prior to the 2002, there were numerous accounting and corporate scandals that rocked the business world. Foremost of which is the Enron debacle which was followed by WorldCom, Tyco International and Global Crossing (CIO Decisions). The collapse of these businesses was attributed to the lack of regulatory controls in the part of the government as well as transparency of operations of corporations which can be of help to its stakeholders in the analysis of profitability and assurance of good governance to the public. They importance of the Act lies on the accountability and security of financial reporting that the stakeholders would have in a corporation’s implementation of good business practices and adherence to laws and regulations in the administration and operations of the company. The Sarbanes-Oxley Act revised a significant portion of the federation securities laws which had been in place for 60 years already (Sarbanes-Oxley Information). Before SOX, there is a self-regulation in the accounting profession whereby the Securities and Exchange Commission was “given statutory authority to set accounting standards and oversight over the Activities of the auditors…the role of establishing standards was left to the accounting profession” (CPCAF). One of the key changes in internal audits is that the “Act requires all financial reports to include an internal control report” (Sarbanes Oxley Basics). The key is the provision of adequate controls so that the company is confident about the financial statements that they are producing. The controls are in place so that the financial data of company is safeguarded. The role of auditing firms is to attest that the assessment of internal controls is effective.
Examine an auditing issue that is impacted by Sarbanes-Oxley....

Similar Documents

Free Essay

Sarbanes-Oxley Act

...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. Sarbanes-Oxley is not a set of business practices and does not specify how a business should store records; rather, it defines which records are to be stored and for how long (www.searchcio.techtarget.com). The legislation not only affects the financial side of corporations, it also affects the IT departments whose job it is to store a corporation's electronic records. The Sarbanes-Oxley Act states that all business records, including electronic records and electronic messages, must be saved for "not less than five years." The consequences for non-compliance are fines, imprisonment, or both. IT departments are increasingly faced with the challenge of creating and maintaining a corporate records archive in a cost-effective fashion that satisfies the requirements put forth by the legislation (www.searchcio.techtarget.com). The intent of the Sarbanes-Oxley Act was to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. The Sarbanes-Oxley Act created new standards for corporate......

Words: 1253 - Pages: 6

Premium Essay

Impact of Sarbanes Oxley Act on Corporate American

...The Impact of the Sarbanes-Oxley Act on Corporate America In discussing the impact of one of the most important laws passed in Congress to legislate the accounting and reporting rules of corporations, I need to give a brief definition and some background information for the Sarbanes-Oxley Act. In 2002, the Sarbanes-Oxley Act was passed into law by the United States Congress. After a series of high profile corporate scandals, such as Enron and WorldCom, the Congress of the United States passed this legislation “to improve and maintain investor confidence. The law requires companies to have more independent board directors (not just company insiders), to adhere strictly to accounting rules, and to have senior managers personally sign off on financial results.” (Bateman, 173). Before the fall of corporations like Enron and WorldCom, there was also far too much corporate fraud during the Internet bubble. According to Stanley Block and his co-authors, “The major accounting firms had failed to detect fraud in their accounting audits, and outside directors were often not provided with the kind of information that would allow them to detect fraud and mismanagement.” (Block, 12). What is the definition, in a nutshell, of the Sabarnes-Oxley Act? This is something that needs to be defined and understood before examining the positive and negative impacts of this law upon corporate America. The Sarbanes-Oxley Act “establishes strict accounting and reporting rules in order to make......

Words: 1961 - Pages: 8

Premium Essay

Sarbanes Oxley Act of 2002

...Sarbanes- Oxley Act of 2002 The Sarbanes-Oxley Act has many different effects of interest to financial service professionals in the business world. This act increase the reliability for financial statement information that financial specialist can use to get a better understanding of the financial picture of the company. Also Sarbanes-Oxley helps financial professionals look into certain conflicts of interest in companies involved in security research and investment banking. The Act mandates disclosure by the securities analysis and increase reliability for analysis recommendation. The Sarbanes-Oxley Act could prove reliability of financial statements and financial analysis even more in the future aspect of business with the growth of technology. The Sarbanes- Oxley Act of 2002 will give companies a better understand of why it’s important for the regulations and guidelines to be followed by due to increase reliability of financial statements and additional studies with potential impact. Increase Reliability of Financial Statements The Sarbanes-Oxley Act provides increase in monitoring accountants and auditors which also regulate the activities of investment bankers, investment analysis and securities researches. New rules for the Act are always in question but the breaking of the original rules leads to audit failures. The Act continues to improve the reporting of financial statements in many different ways for example the creation of the Public Accountancy Board. The...

Words: 774 - Pages: 4

Premium Essay

Sax Law

...Sarbanes-Oxley Act of 2002 Organizations are often led to gain profit by not always doing what is right or legal for that matter. Some may want to hide trails of misled numbers in auditing reports while others will look the other way so that the organization can make a couple dollars. Ensuring that the government holds those companies accountable for not following the law is essential so that we do not go through another financial crisis. The Sarbanes-Oxley Act of 2002 was one way the government intervened to help detour organizations from fraudulent behavior and acts. The article “Sarbanes-Oxley law discourages risk-taking, corporate growth” discusses the impact of the SOX act and business growth. Sarbanes-Oxley Law Discourages Risk-taking, Corporate Growth The article discussed the Sarbanes-Oxley Act of 2002 and how it limits the growth in business by making those businesses shy away from any risky undertakings. The act has made organizations more prone to do low-risk businesses and, as a result, has brought on more cost saving ways “such as job layoffs and outsourcing” (Mishra, 2011). Meaning that organizations are cutting out jobs and outsourcing a lot of the work to save on money so that they can still make a profit. The article discusses how due to the SOX act more directors are spending too much time trying to comply with the act than trying to make plans on how to be more profitable and gain more capital. It has not helped in solving issues of growth and......

Words: 745 - Pages: 3

Premium Essay

Sarbannes Oxley Act of 2002

...The Sarbanes-Oxley Act of 2002 Abstract This paper addresses financial analysis standards legislated in the Sarbanes-Oxley Act of 2002 (SOX). The focus will be on how the legislation enhanced the role of auditing and auditing firms, the impact of whistleblower legislation, and the recent Supreme Court decision. The paper attempts to show that though there continues to be opposition to SOX’s financial reform legislation, there is a case to be made in support of SOX. The research relies on historical data, such as the Enron scandal, and the recent decision by the United States Supreme Court decision that deems SOX as constitutional, to support that legislation is a necessary requirement in today’s global corporate environment, in which some of the largest corporations have proven that, left to their own devices, they will gravitate toward corporate malfeasance. The Sarbanes-Oxley Act of 2002: WorldCom. Enron. Adelphia. Global Crossing. What do all these companies have in common? They will always be synonymous with the following: financial fraud, corporate malfeasance, internal corruption, and the reason behind the passage of the Sarbanes-Oxley Act of 2002 (SOX). Not since the Crash of 1929 and the subsequent passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 (Bumgardner, 2003, para. 2), had the country seen such a push for financial reform. Triggered by investigations into corporate fraud by some of the largest and most successful......

Words: 3735 - Pages: 15

Premium Essay

Term Paper

...Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of 2002 U.S. Senator Paul Sarbnes of Maryland and U.S. Representative Michael Oxley of Ohio followed a series of corporate failures, which inacted the SOX Act based on Enron’s bankruptcy and other key organizations such as Worldcom, Tyco, Xerox, and Adelphia who were among the United States organizations executives in the headlines for misdemeanors and multi-billion dollar reassertions," (Dembinski, Lager, Cornford, Bonvin, 2005). The Sarbanes-Oxley Act of 2002, (SOX) was incorporated to strengthen the internal improvements and oversight of corporate control. The primary purpose is to shield and protect shareholders from fradualent activities within the public sector and the stock market. The table below provides a list of a few provisions implemented in SOX Act. Section 302 | Section 401 | Section 404 | Section 409 | Section 802 | Requires that corporate administration confirm that they have assessed the financial reports. | Requires that financial reports include disclosure about any applicable off-balance sheet responsibilities that may exist. | Requires organizations to state whether or not the business's internal mechanism technique are sufficient and operative. | Requires administration to update the public of important budgetary matters when they occur, instead of waiting until the annual or quarterly report. | Imposes penalties for abuses of the SOX rules, which could lead to fines or some jail time. | A......

Words: 1125 - Pages: 5

Premium Essay

Accounting Information Systems Research Paper

...Abstract The Sarbanes-Oxley Act of 2002 (SOX) was enacted into law in 2002 in the wake of corporation financial reporting scandals involving large publicly held companies. SOX instituted new strict financial regulations with the intent of improving accounting practices and protecting investors from corporate misconduct. SOX requires corporate executives to vouch for the accuracy of financial statements, and to institute and monitor effective internal controls over financial reporting. The cost of implementing an effective internal control structure are onerous, and SOX inflicts opportunity costs upon an enterprise as executives have become more risk adverse due to fears of incrimination. The Public Company Accounting Oversight Board (PCAOB) was created by SOX to oversee the accounting process and dictate independence requirements for auditors and auditing committees. The PCAOB proposed regulations must be approved by the SEC before they are enacted. Since the passage of SOX, the IT department has become critical in designing and implementing the internal controls in company accounting information systems. The Information Technology Governance Institute (ITGI) created a framework called Control Objectives for Information and Related Technology (COBIT) to provide guidance for companies to implement and monitor IT governance. Accounting Information Systems Research Paper The Sarbanes-Oxley Act of 2002 changed the landscape of corporate financial reporting and......

Words: 3250 - Pages: 13

Premium Essay

Sarbanes-Oxley Act

...affecting both large and small investors. Scandals that erupted in the largest U.S. companies as Enron, Tyco and WorldCom, have reduced the overall confidence in the capital market and had a devastating impact on pension assets. As a result, on July 30, 2002, Congress passed the Sarbanes-Oxley Act, creating the radical changes affecting the practice and regulation of accounting and auditing. Evaluation of effectiveness of regulations such as SOX over minimizing the corporate fraud and protecting investors and suggestion for improvement After the scandals, the public was demanding accountability from those who run corporations. It turned out that investors and stakeholders are vulnerable to corporate fraud and highly exposed to the risks of investment losses. Therefore, the Sarbanes-Oxley Act designed to protect the interests of the investing public and reduce their exposure to investment losses as a result of managerial fraud. Act introduced significant legislative changes to existing financial practices and announced a new corporate governance rules. The main objectives of these legislations are protection of investors and shareholders from fraudulent activities of the management as well as building confidence in the financial statements of public companies. The provisions of the Act dramatically changed the relationship between publicly held companies and their audit firms. For example, SOX significantly narrow the scope of non-audit services that may be provided to the......

Words: 1642 - Pages: 7

Premium Essay

Accounting Information Systems Research Paper

...Abstract The Sarbanes-Oxley Act of 2002 (SOX) was enacted into law in 2002 in the wake of corporation financial reporting scandals involving large publicly held companies. SOX instituted new strict financial regulations with the intent of improving accounting practices and protecting investors from corporate misconduct. SOX requires corporate executives to vouch for the accuracy of financial statements, and to institute and monitor effective internal controls over financial reporting. The cost of implementing an effective internal control structure are onerous, and SOX inflicts opportunity costs upon an enterprise as executives have become more risk adverse due to fears of incrimination. The Public Company Accounting Oversight Board (PCAOB) was created by SOX to oversee the accounting process and dictate independence requirements for auditors and auditing committees. The PCAOB proposed regulations must be approved by the SEC before they are enacted. Since the passage of SOX, the IT department has become critical in designing and implementing the internal controls in company accounting information systems. The Information Technology Governance Institute (ITGI) created a framework called Control Objectives for Information and Related Technology (COBIT) to provide guidance for companies to implement and monitor IT governance. Accounting Information Systems Research Paper The Sarbanes-Oxley Act of 2002 changed the landscape of corporate financial reporting and......

Words: 3250 - Pages: 13

Premium Essay

Sarbanes - Oxley Act

...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,......

Words: 2179 - Pages: 9

Premium Essay

Accounting Information Systems Paper

...The Sarbanes-Oxley Act of 2002 and the PCAOB Liberty University Abstract As a result of massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, President George W. Bush signed into legislation during 2002 the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most importing accounting standards that are used every day by auditors of public companies. This paper takes a look at the Sarbanes-Oxley Act of 2002 and its effect on internal controls and small businesses. Also, I will discuss the purpose and specific pronouncements related to accounting information systems and internal controls; as well as the impact of possible future pronouncements. Keywords: Sarbanes-Oxley, PCAOB, Accounting information systems The Sarbanes-Oxley Act and the PCAOB Massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, led to the creation of the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession since it was signed into law. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the......

Words: 2526 - Pages: 11

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

Sarbanes Oxley Act

...IMPORTANT AICPA INFORMATION ON SARBANES-OXLEY |How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession (AICPA) | | | | | | | | | | | | | | | | | | | | ...

Words: 4973 - Pages: 20

Premium Essay

Sarbanes Oxley Act of 2002

...Sarbanes-Oxley Act of 2002 Bus 102 – Dr. Sean D. Jasso John Chi 12/9/2010 Table of Contents - Table of Contents Introduction History of the Act Implementation Impact on Business Policy Analysis Conclusion Appendix References pg. 1 pg. 2 pg. 3 pg. 4 pg. 7 pg. 9 pg. 11 pg. 12 pg. 14 1|P a ge Introduction Corporate Scandals are business scandals that initiate from the misstatement of financial reporting by executives of public companies who are the ones trusted to run these organizations. Corporate scandals are derived in many ways and these misrepresentations happen through overstating revenues and understating expenses, overstating assets and understating liabilities, and use of fictious and fraudulent transactions that gives a misleading impression of the company’s financial status. There were a few corporate scandals that took place in the last decade that forever changed investment policies in corporate America. The companies that are most commonly known for these scandals are Enron, Adelphia, and WorldCom. These companies had hidden their true financial status from creditors and shareholders until they were unable to meet the financial commitments which forced them reveal massive losses instead of the implicated earnings. The ultimate result cost investors billions of dollars when the share prices of the affected companies had collapsed. According to Hopwood, Leiner & Young (2002), pg. 130, “the public outcry from the corporate scandals were......

Words: 4118 - Pages: 17

Free Essay

Sarbanes and Oxley

...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......

Words: 3725 - Pages: 15