How The Sarbanes-Oxley Act Will Impact The Audit Function Essay example

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

The 1990s and the early 2000s was a time that the world witness an explosion of fraud in the corporate world. Corporate fraud like Enron, HealthSouth, Waste Management, WorldCom, Lehman Brothers, etc. was so disturbing that lawmakers felt the need for a law to help curb down these frauds. Lawmakers came out with Sarbanes Oxley named after Senator Paul Sarbanes and Rep. Michael G. Oxley, the co-sponsors of the act. The purpose of this essay is to discuss some of the tax advantages and disadvantages of Sarbanes-Oxley and to explore whether the advantages outweigh the disadvantages for small businesses as well as the tax benefits for those businesses.

The Sarbanes Oxley Act is an act passed by the United States Congress to protect investors from the possibility of fraudulent accounting activities by corporation. The Sarbanes Oxley Act has strict reforms to improve financial disclosures from corporations and accounting fraud. The acts goals are designed to ensure that publicly traded corporations document what financial controls they are using and they are certified in doing so. The Sarbanes Oxley Act sets the highest level and most general requirements but it imposes the possibility of criminal penalties for corporate financial officers. The Sarbanes Oxley Act sets provisions that are used throughout numerous amounts of corporations. It holds companies to a larger responsibility and a higher standard with accounting principles and the accuracy of financial statements.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

A lot has been made, perhaps without justification, of the July 30, 2002 passage of H.R. 3763, The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley" or The Act). Having read the Act, I suspect that the great praise is unfounded. I intend to address three issues presented within the act. First, I will address stock options as considered (or neglected, as the case may be) by Sarbanes-Oxley. Second, I will address the creation of a Commission designed to oversee audits and corporate accounting practices, and the potential efficacy of this Commission. Finally, I will address the modifications to the Federal Sentencing Guidelines as it relates to corporate fraud.

Public companies issuing securities, public accounting firms, and firms providing auditing services whether they are domestic or foreign must comply with Sarbanes-Oxley. (Sarbanes-Oxley Act Section 404, 2002) Additionally, publicly traded companies with a market capitalization greater than $75 million must comply with these new rules. (Don E. Garner, 2008) A company’s management is required to provide an external auditor with all financial statements for the current review period. Upon reviewing these statements the auditor issues a report classified as unqualified, unqualified with explanation, qualified, adverse, or disclaimer based on what they find or do not find. All public companies reports are available on the Securities Exchange Committees website, below is a sample of what this report looks like. You can imagine what a relief this was for investors, to be able to search any company and find statements solidifying their prospective investment.

Sarbanes-Oxley Act was a game changer for corporations all across the United States. Prior to Sarbanes-Oxley Act, big name companies such as Enron, Kmart and Tyco were more inclined to have fraudulent activities happen internally. Having all these issues arise during the last decades, Congress was anxious to act and create Sarbanes-Oxley Act with the intentions to protect investors and have strict reforms to deter internal financial frauds from occurring again. Although, this reform has had a great amount of success in achieving its goals, it also has some holes that were not well though out, when it comes to the entirety of it. The main problem with Sarbanes-Oxley is the cost it has on smaller companies, which shifted the power from the investors and into the auditors. (Prince, 2005)

The Sarbanes-Oxley Act was passes in 2002 in response to a handful of large corporate scandals that occurred between the years 2000 to 2002, resulting in the losses of billions of dollars by investors. Enron, Worldcom and Tyco are probably the most well known companies that were involved in these scandals, but there were a number of other companies guilty of such things as well. The Sarbanes-Oxley Act was passed as a way to crackdown on corporations by setting new and improved standards that all United States’ public companies and accounting firms were and are required to abide by. It also works to hold top level executives accountable for the company, and if fraudulent behaviors are discovered then the executives could find themselves in hot water. The punishments for such fraudulence could be as serious as 20 years jail time. (Sarbanes-Oxley Act, 2014). The primary motivation for the act was to prevent future scandals from happening, or at least, make it much more difficult for them to happen. The act was also passed largely to protect the people—the shareholders—from corporations, their executives, and their boards of directors. Critics tend to argue that the act is to complicated, and costs to much to abide by, leading to the United States losing its “competitive edge” in the global marketplace (Sarbanes-Oxley Act, 2014). The Sarbanes-Oxley act, like most things, has its pros and cons. It is costly; studies have shown that this act has cost companies millions of

The Sarbanes-Oxley Act, or SOX Act, was enacted on July 30, 2002. Since it was enacted that summer it has changed how the public business handle their accounting and auditing. The federal law was made coming off of a number of large corporations involved in scandals. For example a company like Enron was caught in accounting fraud in late 2001 when the company was using false financial statements. Once Enron was caught that had many lawsuits filed against them and had to file for bankruptcy. It was this scandal that played a big part in producing the Sarbanes-Oxley act in 2002.

After major corporate and accounting scandals like those that affected Tyco, Worldcom and Enron the Federal government passed a law known as the Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act. This law was passed in hopes of thwarting illegal and misleading acts by financial reporters and putting a stop to the decline of public trust in accounting and reporting practices. Two important topics covered in Sarbanes-Oxley are auditor independence and the reporting and assessment of internal controls under section 404.

The development of the Sarbanes-Oxley Act (SOX) was a result of public company scandals. The Enron and Worldcom scandals, for example, helped investor confidence in entities traded on the public markets weaken during 2001 and 2002. Congress was quick to respond to the political crisis and "enacted the Sarbanes-Oxley Act of 2002, which was signed into law by President Bush on July 30" (Edward Jones, 1), to restore investor confidence. In reference to SOX, penalties would be issued to non-ethical or non-law-abiding public companies and their executives, directors, auditors, attorneys, and securities analysts (1). SOX significantly transformed the procedures in which public companies handle internal

The Sarbanes-Oxley Act of 2002 is one of the most important legislations passed in the 21st century effecting financial practice and corporate governance. This act was passed on July 30, 2002 thanks to Representative Michael Oxley a republican from Ohio and Senator Paul Sarbanes a democrat from Maryland. They both passed two different bills that pertain to the same problem which had to do with corporation's auditing accountability and financial fraud problems within corporations. One was bill (S. 2673) brought by Senator Sarbanes and the other bill (H. R. 3763) brought by Representative Oxley. Both bills where passed separately one by the house and the other by the

The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence.   In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting.   Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

For just a brief moment, imagine yourself sometime in the future. You have been recently married, you just started a brand new job, and are looking to start a family. As a way to plan for financial security, you have done some research into financial investments. You are hoping to build a portfolio, which will be a mix of low, median, and high-risk stock. Flash forward into the future by 20 years. During this time, the stock prices have appreciated and depreciated, yet overall done remarkably well. All of a sudden, one morning you wake up to some disastrous news. One of the company’s you invested in, which held a majority of the portfolio of stock, has been participating in financial fraud. While they had been presenting themselves well, under the surface deceptive accounting and financial practices were being used and now the company is broke. All of your hard earned money which was invested in that company is now gone-down to the last penny. Does this sound vaguely familiar? It should. In 2001, Enron, a United States company, became the very largest bankruptcy and stock collapse in history (Columbia Electronic Encyclopedia). As a result, in 2002, The Sarbanes-Oxley Act was passed as means to prevent fraud, improve financial reporting, and gain back the trust that was previously lost by investors. Although numerous publicly traded companies, which are companies registered on the U.S. stock exchange, were less than happy to welcome