Essay about Critique of the Effectiveness of the Sarbanes-Oxley Act

Congress enacted the Sarbanes-Oxley (SOX) Act of 2002 to restore investor confidence by requiring public companies to strengthen corporate governance through several mechanisms, including enhanced disclosure on Internal Control Over Financial Reporting (ICFR). As claimed by regulators, the disclosures on the effectiveness of ICFR are aimed at improving the quality of financial reporting, which would, in turn, reduce the information asymmetry for investors in U.S. capital markets” (Donaldson). Sarbanes- Oxley named after its creators, Senator Paul Sarbanes, D-Md and Congressman Michael Oxley, R-Ohio. Enacted in 2002 with the purpose to crack down on corporate fraud. The implementation of Sarbanes-Oxley led to the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting industry. It was created to eliminate corporate fraud, and it put in place a ban on company loans to executives while also giving job protection to whistleblowers. Before SOX was put into place the accounts were a self-regulated profession, such as medical professionals and lawyers. This is what led to the fraudulent actions of major institutions, people can be greedy, and they need checks and balances to ensure the fidelity of the firm. There are criminal enhanced penalties for corporate fraud and related misdeeds, this brings justice to the sector as well as working as a deterrent for additional immoral

Should the increased audit fees charged to clients be the basis for the increased costs calculation? Another area that could be considered a loss is the loss of non-audit or consulting fees to the public accounting firms. Further, are the indirect costs, such as the consideration of lost opportunities that are attributable to the Sarbanes-Oxley Act of 2002 (Jahmani, Yousef; Dowling, William A., 2008). Another cost to comply with Sarbanes-Oxley Act of 2002, was the PCAOB inspections. Public accounting firms put great effort and much money into preparing for a PCAOB inspection due to how detailed the inspections could be.

Investors in publically trading companies should be protected from fraud, corruption and the intentional misleading by corporate executives concerning corporate finances. The Sarbanes-Oxley Act was passed on July 30, 2002 for the purpose of protecting investors from the risk of deceitful accounting practices by corporations. This paper discusses the background of the Sarbanes-Oxley Act of 2002 to include the when and why; as well as the intentions and purposes, and the process. It further addresses the arguments for and advantages of the law and the disadvantages. Lastly, this paper will speak to the impact of Sarbanes-Oxley in 2017 and beyond; containing the lawsuits, SOX for Not for profits and foreign countries.

Kecskés, (2016) portends that one thing to be learned from the creation of Sarbanes-Oxley Act is that haste does indeed make waste (Kecskés, 2016). Kecskés, (2016) Stated that reviewing the Sarbanes-Oxley Act from a legal-prudence view, it was a flawed piece of legislation (Kecskés, 2016. One mandate of the SOX act is that senior management must now certify the financial statement of the organization. This mandate is explained in

This guideline helps in brining substantive change in Sarbanes Oxley Act. It has been analyzed that SOX require audit work papers and other relevant information for the period of minimum seven years. These ramifications within a short period help in improving the effectiveness of Sarbanes Oxley Act. SOX are also focused towards using the internal auditors as a critical resource management. Through the internal auditors resources within the organization can be allocated easily and frauds can be controlled (Mayo, 2010). SOX have also developed security professionals in order to handle the issues related to frauds and other internal control problems. Enron is the best example of proving the effectiveness of ramification of Sarbanes Oxley Act.

Corporate fraud was the cornerstone for the strict implementation of the Sarbanes-Oxley Act of 2002 (SOX). SOX implements many compliance regulations, but one of its regulations, specifically Section 404, relates to an organization’s internal control procedures with the purpose of protecting organizational assets and investors’ interest. Consequently, organizations, big or small, private or public, are prone to fraud. SOX’s compliance of internal control procedures is developed through the Committee of Sponsoring Organizations of the Treadway Commission (COSO) known as the COSO framework that consists of the following procedures: control environment, risk assessment, control activities, information and communication and monitoring. Each variable address a layer that builds upon each other by

The Sarbanes-Oxley Act of 2002, also known as the SOX Act, is enacted on July 30, 2002 by Congress as a result of some major accounting frauds such as Enron and WorldCom. The main objective of this act is to recover the investors’ trust in the stock market, and to prevent and detect corporate accounting fraud. I will discuss the background of Sarbanes-Oxley Act, and why it became necessary in the first section of this paper. The second section will be the act’s regulations for the management, external auditors, and companies, mainly publicly-traded companies, and the cost and benefits of the act. The last section will be the discussion of the quality of financial reporting since SOX and the effectiveness of SOX provisions to prevent another financial statements fraud, such as Enron and WorldCom from occurring in the future.

The Sarbanes Oxley Act of 2002, better known as SOX, was passed in response to the scandals that had plagued many companies, from WorldCom to Enron, in the US. SOX was intended to restore investor confidence, decrease fraud and mismanagement while enhancing transparency and corporate governance (Ernst & Young). With the passing of SOX, the Public Company Accounting Oversight Board (PCAOB) was established to oversee the auditing firms that allowed, whether knowingly or not, these companies to commit fraud and fraud the American people out of their life savings (Harris). With all laws, there will always be some successes and failures. With that you will also have some who feel the law needs to be repealed or be reevaluated to decrease the

The Sarbanes Oxley Act was approved and activated in 2002 to protect investors and to renew confidence in American companies from what happened with the fall of companies like Enron, HealthSouth, and WorldCom. This act was trusted to fix or find corruption in the companies and make them liable for their unethical activities. Although this act has proven to have many benefits, the cost of complying with the act for some companies has been much greater than expected. There are also negative

As a result of authorizing the Sarbanes Oxley necessities for the non profits healthcare firms, fraud connected matters can be decreased. In addition to this it can as well be advantageous for those increasing the business supremacy of the not for profit hospitals. Completion of a number of SOX segments like for instance changing the lead review partners, setting up a review committee together with pre approving non review fees would be obliging for the non profit healthcare businesses in rising of the corporate governance (Act, 2002).

Although the Sarbanes-Oxley (SOX) Act comes with many different benefits, the Act itself still consists of any major pros and cons. The SOX Act must review what needed to fix or changed due to the unfair to small companies. Therefore, it should be considering making improvements to other areas to ensures fair practices. Like many major businesses guidelines, the SOX Act should do its part to push to prevent conflict of interest. Although it has made significant improvement on the reliability of financial reporting for public traded companies and helping investors in today business world. It still need to assures the auditing process is fair and consistent to tighten the awareness of unethical practices. The SOX Act has already put major company

One of the major issues that Butler and Ribstein (2006) take with the Sarbanes-Oxley Act is that the law was put into place quickly and in response to current economic disasters. Instead of allowing time to pass and for substantial amounts of analyses to be conducted in order to determine the best course of action, legislators were responding to several high-profile cases of business malfeasance, such as in the case of the Enron Corporation. People of the

The Sarbanes Oxley Act was approved and activated in 2002 to protect investors and to renew confidence in American companies from what happened with the fall of companies like Enron, HealthSouth, and WorldCom. This act was trusted to fix or find corruption in the companies and make them liable for their unethical activities. Although this act has proven to have many benefits, the cost of complying with the act for some companies has been much greater than expected. There are also negative effects of the Sarbanes Oxley Act that have been felt by not only companies, but investors in stock and consumers. With all this being said it lead to many asking the best question of all which was, Do the costs outweigh the benefits? The SOX Act was passed to improve the accountability of managers to shareholders however companies are finding the compliance costly, and are starting to question the true balance of the cost verses the benefits.

In the begging of 2000’s after a period of corporate scandals involving large public companies, senate enacted the Sarbanes-Oxley Act, which is referred to as SOX or Sarbon. The act was enacted 14 years ago on July, 30 2002. Also this act was known as the “Public Company Accounting Reform and Investors Protection Act of 2002.” There are many serious accounting and corporate scandals that influenced companies Tyco International, Global Crossing, Enron, WorldCom. For instance the bankruptcy of “ENRON” in 2001 was the one of largest bankruptcy in the U.S. history. That time investors lost $74 billion and thousand employees losing their jobs, retirement savings and medical plans. The time during the scandals happened, where the mentioned

There were many criticisms of SOX Act concerning the regulations and guidelines that currently presents an unfair burden on smaller organizations. I am fully in agreement due to smaller organizations were the major players like those major corporate companies. These smaller companies have more tough time and unable to deal with the problems mandated by the government due their size (Orin, 2008). By ensuring the smaller companies are able to be in compliance to SOX, they will have to pay a heavily price. According to Kessel (2011), even a bio-tech form still facing the burden and they were unable to overcome the price when facing SOX. They have the capital, but not the revenue to go through these obstacles and difficult for them to run its operations.