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The Sox Act: Unethical Practices and Behavior in Business Accounting

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Week 5 Individual Assignment
By
Felicia Lattimore
The SOX Act: Unethical Practices and Behavior in Business Accounting
LAW/421 – CONTEMPOARY BUSINESS LAW

September 6, 2014

Aretha Somerville

Introduction Unethical decisions can ruin a business. Dishonest behaviors by accountants, such as falsifying financial statements, over-billing or misleading regulators, can tarnish a company's reputation, causing loss of customers, employees and/or revenue. In some cases, unethical behavior is also illegal and can result in fines and even jail time for not only accounting executives but management executives as well.
The Sarbanes-Oxley Act (SOX) was enacted in 2002 in the wake of a series of high-profile corporate and accounting scandals. SOX introduced major changes to corporate governance and the regulation of financial reporting that affected both publicly traded companies and their auditors. Ten years after the passage of SOX, there has been a dramatic increase in financial statement restatements. This is due to statement issuers complying with SOX during their initial preparation. This trend has been attributed to improved corporate governance as a result of SOX. Although we have not seen restatements as large as those of Enron and WorldCom in recent years, it is not clear that SOX has caused a reduction in the number of restatements across all publicly traded companies. The number of restatements during 2007 through 2009 declined, but they remained above pre-SOX levels. Moreover, in 2010, the declining trend in the number of restatements reversed, and the number of restatements has continued to grow. Although SOX does not appear to have caused a broad decrease in the number of restatements, it has been attributed as a cause for the dramatic decrease in the number of securities class actions filed in recent years.
The results of the…...

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