...Sarbanes-Oxley Act Financial Management Miriacle K. Black Belhaven University Abstract In 2002 an Act by the name of Sarbanes-Oxley was implemented following the bankruptcy of Enron, an American energy, commodities, and Service Company that was based out of Houston, Texas. This paper will discuss and describe the Sarbanes-Oxley Act; also it will answer such questions as: Why was the Sarbanes-Oxley Act enacted? What was the impact of the Sarbanes-Oxley Act? Also, my opinion of whether or not I thing this Act will somehow stop accounting practices. This Act is surely a case of one bad apple spoils a bunch. Sarbanes-Oxley Act The Sarbanes-Oxley Act is a case of one bad apple spoiling a bunch. What is meant by this statement is because of one company’s selfishness and greed; a lot of other companies now have different hoops to jump and straight lines to walk, to keep the same thing from happening again. Not to say outright that the Act is a bad thing because it’s not. When companies go bankrupt that particular company is not the only thing that is affected, these companies have investors and stockholders and they too are affected. This act will allow for such companies and their employers to stay on the straight and narrow. The Sarbanes-Oxley Act was enacted in 2002 following the bankruptcy of Enron, an energy trade company out of Houston, Texas. According to lawyershop.com, Enron kept the fact that they were billions of dollars in debt from its shareholders (Shaw, 2008)...
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...The Sarbanes-Oxley Act, passed in 2002, is aimed primarily at public accounting firms who participate in audits of corporations. It was passed in response to a number of corporate accounting scandals that occurred between 2000-2002 (Peavler, n.d). This act set new standards for public accounting firms, corporate management, and corporate boards of directors. Sarbanes-Oxley, or SOX, is a federal law that is the most comprehensive reform of business practices since Franklin D. Roosevelt was President of the U.S. and passed the New Deal. What caused the need for the Sarbanes-Oxley Legislation? The Enron scandal was certainly enough to show the American public and its representatives in Congress that new compliance standards for public accounting and auditing had to be put into place. Enron was one of the biggest and, it was thought, one of the most financially sound companies in the U.S. Enron was perhaps the catalyst for the Sarbanes-Oxley legislation. Enron stands for the greatest company scandal in the history of the US economy and has become a symbol of corruption for the whole Western economic system. In 2001, the nation was rocked by the collapse of Enron, a multibillion dollar corporation that employed thousands of people and had affiliations right up to and including The White House itself. Amid the financial chaos and destroyed lives and reputations the collapse left in its wake, questions arose concerning exactly how the catastrophe occurred, why it occurred, and who...
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...Sarbanes-Oxley Act Article LAW/421 Sarbanes-Oxley Act Article The article chosen is the Sarbanes-Oxley Act of 2002 and the legacy of Enron. This act was passed after corporate scandals that involved the regulatory mismanagement and fraud of Enron. This article review will cover topics on how the Sarbanes-Oxley and the collapse of Enron in which affected the ethical decision-making processes in business environments and criminal penalties for which the act provides. Decision-Making in Business Environment “A new generation of corporate leaders has entered the boardroom since Enron’s bankruptcy in December 2001” (Peregrine, 2011, Para. 2). The Act of Sarbanes-Oxley was passed to restore the integrity and to renew consumer confidence in the financial markets. The Sarbanes-Oxley regulates three areas: financial reporting, auditing, and corporate governance. The Sarbanes-Oxley requires businesses and corporations to develop and implement a code of ethics, collaboration, and confidentiality. The significance of this law is to viewed context that affect corporate governance and the exercise duties of officers and directors. Decision-making provides standards and guidelines to those employees of all levels. “This new law impacted accounting and financial decision making because it required companies to be responsible for their financial decisions; it also regulated the way board members and auditors interact, as well as, recognizing and regulating the problem of auditors working...
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...financial analysis for personal gain, misuse of funds, overstating revenue, overstating the value of corporate assets, or even underreporting the existence of liabilities. The purpose of the Sarbanes-Oxley act is to, “Protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.” ("Sarbanes-Oxley Essential Information", 2003-2012). The Sarbanes-Oxley act was named after senator Paul Sarbanes and Representative Michael Oxley. Sarbanes and Oxley drafted the Sarbanes-Oxley act of 2002; both wanted to make sure that any business or corporation would be held accountable for wrongdoings. Enron would be sure to be held accountable. Enron Corporation Enron Corporation was an American energy company located in Houston, Texas. Enron employed nearly 21,000 people and was one of the world’s leading electricity, natural gas, pulp and paper, and communications companies. Enron’s fall was the result of unethical practices and behavior. Enron began as a company that only sold natural gas. “Yet, in a sign of trouble to come, in 1987 Lay overlooked evidence of financial misdeeds in the company’s Valhalla, NY unit as executives Louis Borget and Thomas Mastroeni greatly inflated profits while embezzling funds.” ("Enron: A Disaster Years...
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...Sarbanes-Oxley Act.2002 Darrell Kelley LAW/412 June 27,2013 Mark Reed Sarbanes-Oxley Act.2002 In this essay one will be discussing Enron, the illegal activity of Enron and the establishment of the Sarbanes-Oxley act 2002. Also one Discusses the ethical views in todays business world and the criminal penalties that the Sarbanes-Oxley Act provides Enron was an American energy business in commodities and services company based out of Houston, Texas. Enron was a rapid growing corporation that organization goal was in producing natural gases, communications, electricity, pulp and paper with was once believed to have had employed approximately over 18,000 employees (Frontain). With monopolizing in such resource ventures Enron was once believed to have made well over 100 hundred billion dollars in revenue. In the height of Enron’s success of banking in million of dollars through out their empire there were also faulty accounting be done internally. Thousand to millions of dollars being signed off to hire up E of the company leading to questioning of the money (Frontain), account scandals and audits. By the early 2000’s Enron was in over their head in fraudulent financial documents, having less than enough funds to payback what was owed, as well keeping employees on payroll Enron made the move of filing bankruptcy leaving whatever ethical, moral responsibility they have had abandoned. With Enron’s fraudulent financial secrets and bankruptcy being brought...
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...Sarbanes Oxley: An Antidote To Executive Greed? | May2011 | “Today I sign the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt. This new law sends very clear messages that all concerned must heed. This law says to every dishonest corporate leader: you will be exposed and punished; the era of low standards and false profits is over; no boardroom in America is above or beyond the law”- George W. Bush | | INTRODUCTION Since the initial separation of corporate ownership from corporate management, the abuse of power by management has been a concern. Early in the last century a small number of Industrialists owned and controlled the major corporations. Slowly, as these individuals aged and retired, their vast holdings were transferred to a large number of decedents who were, for the most part, disinterested in managing the firms in which they held an ownership share. The shareholders relied on experienced managers to direct their corporations. This transfer of power gave rise to agency problems wherein the agent of the organization (manager) is likely to place their own interest above those of the actual owners of the firm. There is a vast body of literature addressing the issues of agency problems and clearly defined Agency Theory to which the majority of scholars subscribe (Van Ness, Miesing, and Kang, 2009) The original attempt to create an antidote to agency problems was the formation of corporate boards of directors...
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...THE COLLAPSE OF ENRON & THE INTRODUCTION OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the...
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...The Ineffectiveness of the Sarbanes Oxley Act In Corporate Management and Accounting In the early 1990s, a young company named Enron was quickly moving up Fortune magazine’s chart of “America’s Most Innovative Company.” As the corporate world began to herald Enron as the next global leader in business, a dark secret loomed on the horizon of this great energy company. Aggressive entrepreneurs eager to push the company’s stock price higher and a series of fraudulent accounting procedures involving special purpose entities were about to be exposed. In early 2002, the United States Justice Department announced its intent to pursue a criminal investigation into the once mighty company, Enron. After the gross negligence of accounting procedures were discovered at Enron, Congress passed the Sarbanes Oxley Act of 2002. While this legislation was seen by many as the rules to keep large corporations from destroying investors and employees, it also created unnecessary confusion and unbearable costs for American businesses. Perhaps one of the most confusing pieces of the Sarbanes Oxley Act is §404, regarding “the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.” (Sarbanes Oxley Act of 2002) While this sounds like good legislation, the cost of compliance with §404 varies greatly among public companies, depending on the size of their business. Joseph Piche, founder and CEO of Eikos, Inc., testified...
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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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...Article Review: Sarbanes – Oxley Act LAW/421 August 20, 2012 Jane Schneider Sarbanes – Oxley Act of 2002 Modern businesses have their full share of ethical dilemmas. With law and ethics, business environments can be equipped with tools to successfully handle ethical situations. Without legal and ethical discipline, a business can deteriorate in the blink of an eye. Because of the Sarbanes-Oxley Act, businesses can be controlled on the way they conduct business through the instruction of auditing, corporate governance, and financial reporting. The Sarbanes-Oxley Act came about due to the issues with Enron. Enron was an organization founded based on two companies: InterNorth and Houston Natural Gas. Enron grew rapidly in the United States and maintained strong globally. Even through Enron progressed, the executives became greedy. Days before Enron announced a $618 million loss over the third quarter, the company’s accountants told workers to destroy all audit material and keep the basic work documents. Because of this, workers suing Enron for lost retirement savings were denied all of the backup paperwork to support their claims against Enron. Enron’s accounting firm reminded employees of the document destruction process prior to the subpoenas issued by the Security and Exchange Commission. There is speculation that documents were being destroyed even after the subpoenas were issued. Accounting firms are to use a retention policy, and any intentional destruction...
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...Management 12th, December 2012 Sarbanes-Oxley Act’s Impact on Corporate Business Business scandals, Ponzi schemes and fraud are something we have all heard of. Over the years there have been many accounting scams from companies all over the world. We all remember one of the most publicized cases of fraud, Enron. For many years there has been fraudulent activity in many companies. Sarbanes-Oxley was established to prevent these types of scandals. Some believe it is not as valuable as once predicted, but is anything 100% preventable? Prior to Sarbanes-Oxley Act, the Securities and Exchange Commission was in place since 1934. It was established to police U.S. financial markets. However after years of failure and proof that the Securities and Exchange Commission’s wasn’t enough, the Sarbanes-Oxley Act was born. In 2002 Sarbanes-Oxley Act was created by Senator Paul Sarbanes and Representative Michael Oxley. Several large company failures not only sparked the public on fraud activity, but also these two gentlemen who decided to put into place something that would enforce financial honesty in businesses. There are several layers to the Sarbanes-Oxley Act. ,For example section 404 requires companies to have internal control report with their annual audits. This section of Sarbanes-Oxley also puts accountability and personal liability on the accounting teams of the companies. The infamous Enron scandal unraveled itself in 2001. Enron marketed gas and electricity among...
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...RBOX Reflection Paper on The Sarbanes-Oxley Act I. Introduction The Sarbanes-Oxley Act of 2002 (Sarbox or SOX), also known as 'The Public Company Accounting Reform and Investor Protection Act' in the US Senate, was enacted on July 30, 2002. This law was co-authored/sponsored by US Senator Paul Sarbanes (D-Maryland) and US Congressman Michael Oxley (R-Ohio). The act contains 11 sections with various requirements ranging from additional corporate board responsibilities to criminal penalties, and empowers the Securities and Exchange Commission (SEC) to implement rulings that comply with the said act/law. The objective of this law was two-fold: 1) to restore the public confidence in public accounting, auditing and public securities trading 2) to assure ethical business practices by demanding executive awareness and accountability. But why and how did this law come to fruition? What events prompted these U.S. lawmakers to pass this bill in the first place? This bill was enacted as a reaction to a number of major corporate and accounting debacles (or accounting scandals). Some of those corporate accounting scandals involve companies such as Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of these affected companies collapsed and shook public confidence in the US securities markets. To better understand SOX, it is best to understand the first company that found itself in that accounting...
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...everywhere. The government needs to make sure that the public’s interests are maintained and preserved. Being an accounting student, I have heard and read about regulation in the accounting industry numerous times. There have been many major accounting scandals in history that have lead to many different kinds of government regulation. The government regulations in accounting are mostly enacted to protect investors. From 2000 to 2002 there was an abundant number of large corporate accounting frauds, which led to the Sarbanes-Oxley Act of 2002. Previous regulations were efficient to a certain extent, but scandals still happened and more regulation seemed to always be needed. Even though the new SOX regulation seems powerful and efficient, I believe that there will always be a need for additional regulation in order to prevent future scandals. Securities Acts of 1933 and 1934 Summary of Regulation The stock market crash of 1929 resulted in the Securities Act of 1933. This act required that before a company an offer or sell securities in a public offering, they must register the securities with the Securities and Exchange Commission (SEC). The registration statement is used to notify the SEC that a sale of securities is pending and that the information needs to be disclosed to prospective buyers. This statement includes information about the issuer and its business, a description of the stock, the proposed use of the proceeds from the offering, and audited balance sheets and income...
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...What exactly is the Sarbanes-Oxley Act? Who does it protect? Who benefits from SOX most? I will discuss what the Sarbanes-Oxley Act (SOX) is its key components, and its primary objective. Also, I will discuss the criticisms surrounding the SOX act. Why it is important to enforce the Sarbanes-Oxley Act. Finally, I will discuss if the SOX has achieved its goals. 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 (Bing, 2007). This basically means that corporations must keep good records of what goes on in their business, not just for their benefit, but just in case of an audit, then they’ll have all their transactions ready to be reviewed and to keep future corporate scandals down. The Sarbanes-Oxley Act was passed by Congress on July 30, 2002. The law forced public companies to spend much more money having their books thoroughly audited, and it increased the penalties for executives who defrauded investors. Since the bill's passage and implementation, nervous investors who had yanked trillions of dollars from the market have returned (Farrell, 2007). The men behind the Sarbanes-Oxley Act consist of U.S. Treasury Secretary Henry Paulson, New York Stock Exchange CEO John Thain and former AIG chief Maurice "Hank" Greenberg. Even though their voices my appear to be isolated, Charles Niemeier a member of the Public Company Accounting Oversight Board...
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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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