Sarbanes-Oxley Act Analysis

The Sarbanes-Oxley is a U.S. federal law that has generated much controversy, and involved the response to the financial scandals of some large corporations such as Enron, Tyco International, WorldCom and Peregrine Systems. These scandals brought down the public confidence in auditing and accounting firms. The law is named after Senator Paul Sarbanes Democratic Party and GOP Congressman Michael G. Oxley. It was passed by large majorities in both Congress and the Senate and covers and sets new performance standards for boards of directors and managers of companies and accounting mechanisms of all publicly traded companies in America. It also introduces criminal liability for the board of directors and a requirement by

Despite impacting the national economy as well as investors, the Sarbanes-Oxley legislation also has had a considerable impact on information technology organizations. When in 2002 George W. Bush signed the Sarbanes-Oxley legislation he noted that this is the most important and far-reaching reform that the United States has had since the time of Franklin D. Roosevelt (Damianides, 2005). The impact that the Sarbanes-Oxley legislation has had

The act identifies and assigns accountability to those who knowingly falsify documents and it clearly states the consequences for acting outside the defined standard, relating to corporate governance. Using case studies we will review how the passing of the Sarbanes-Oxley Act is helping to standardized a code of conduct and how it has increased the awareness of corporate responsibility. First, we will review the definitions of corporate governance, business ethics and corporate responsibility. Next, we will examine the effectiveness of the Sarbanes-Oxley Act, through a case study and identify possible challenges the Sarbanes-Oxley Act may face, as public demand for social responsibility increases. Finally, we will review proactive recommendations for provisions to key titles of the Sarbanes-Oxley Act. These provisions will accommodate the growing public demand for ethical and social responsibility.

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 law, and for other purposes. (Lander, 2004) The Act created new standards for public companies and accounting firms to abide by. After multiple business failures due to fraudulent activities and embezzlement at companies such as Enron Sarbanes and Oxley recognized a need for the revamping of our financial systems laws, rules and regulations. Thus, the Sarbanes-Oxley Act was born.

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

Senator Paul Sarbanes and Representative Michael Oxley created the act to keep businesses from producing false financial documents just to get investors to invest into the company because it appears that the business is doing very well. Companies like Enron under this new act couldn’t produce the false accounting statements without first having an auditor coming in and checking over the inventories or book keeping data. Now investors can relax a little more and not worry that the financial statements are falsified or are generalized and rounded up to make the company look good. Investors can trust that the auditors are doing their job and verifying the books and data for those companies.

On July 30, 2002, George Bush signed into law the Sarbanes-Oxley Act. This act was a product of the collapse of major corporations such as Enron, Global Crossing, Adelphia, and WorldCom. “All four companies allegedly hid their true financial conditions from creditors and shareholders until an inability to meet financial commitments forced these companies to restate earnings and reveal massive losses. The financial collapse of these corporations, a result of allegedly fraudulent accounting practices, created a ripple effect that weakened a stock market already deflated by both the bursting of the technology bubble in 2000 and investor uncertainty resulting from the terrorist attacks of September 11, 2001(Recine, 2002).” In order to prevent

The Sarbanes Oxley Act came to existence after numerous scandals on financial misappropriation and inaccurate accounting records. The nature of scandals made it clear there are possible measure that could be used to prevent future occurrence of financial scandals. And the existence and effectiveness of Sarbanes Oxley has caused

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.

After the demise of Enron due to accounting fraud, the Sarbanes-Oxley (SOX) Act was created by the government to establish penalties for corporate fraud and require companies to have a code of ethics along with transparency accounting for shareholders (Ferrell, Fraedrich, & Ferrell, 2013). In other words, the Sarbanes-Oxley Act provides a set of checks and balances making it more difficult for a corporation to defraud shareholders. The Sarbanes-Oxley Act created the Public Company Oversight Board, which is responsible for monitoring accounting firms and establishing the rules that must be followed (Ferrell, et al, 2013).

In the early 2000s, accounting fraud was significantly shook investors’ confidence, the public scandals such as Enron and WorldCom hurts investor. Due to the great loss from accounting fraud and corporate failures, The Sarbanes Oxley Act was signed in 2002 to rebuild the confidence of public confidence. (Jahmani, Dowling 57)

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

Throughout our academic studies, we have been taught what the Sarbanes-Oxley Act is and what it represents. However, professors have left behind the topic of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and have focused mainly on teaching about the Sarbanes-Oxley Act. In this paper I will further explain both of these fundamental terms, some of the major provisions of Sarbanes-Oxley Act and Dodd-Frank, and the pros and cons for some of the provisions targeted by the legislation. To conclude, I will also state where I stand personally and professionally on these issues.

Sarbanes Oxley Act of 2002 or the Public Company Accounting Reform and Investor Protection Act, also known as Corporate and Auditing Accountability and Responsibility Act (hereinafter the “Sarbanes Oxley Act”) was enacted by the US Congress in response to the accounting scandals such as Enron, Tyco International, Adelphia and Worldcom. In early 2000, the American stock markets had crashed, after a long boom period during the 1990s. Stock prices continued to be low for several years, until recovery began in 2003. What the Sarbanes Oxley Act sought to do was to reform corporate governance and accounting standards in a way that would create greater transparency and more accountability. Sarbanes Oxley led to greater internal control of financial reporting, and increased expertise and independence among more-focused boards, committees and directors. Sarbanes Oxley Act especially reinforced the concept of independence on boards by focusing on the independent directors. It also strengthened whistleblowers and built protections and safeguards against persecution of whistleblowers. It introduced audit requirements which were designed to ensure financial probity. Finally it also crystallized the role of the in-house counsel in a business organization making it akin to a watchdog.