Sarbanes-Oxley Act Of 2002 Ethical Analysis

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Before 2002, shocking scandals in the stock markets generated substantial losses to investors and, for a time, the United States economy was in near chaos. Enough evidence of impropriety, financial statements, market analysts, politicians and company executives, emerged to increase investor skepticism for a long time (Larson, Thompson and Walters, 2004). The primary focus of this problem was the concerns regarding the ethical behavior of business enterprises and the effectiveness of accounting and auditing norms (Larson et al. 2004). The Sarbanes-Oxley Act of 2002 was signed into law by President George W. Bush to enhance the public's confidence in the accounting profession (Larson et al., 2004). This Act, considered one of the most noteworthy …show more content…

One benefit that has resulted in the passage of this Act is that it has amplified companies’ board of directors’ consciousness of their accountability, reliability, and requirements of their work (Larson et al., 2004). Board members are now questioning their roles and responsibilities, and working together with the company’s CEO and management. Another benefit, the Sarbanes-Oxley Act increased the time obligation a board member must be a member. Additionally, board members now must have a better understanding of his or her role representing the shareholders. Board members are making difficult decisions as a result of the Sarbanes-Oxley Act (Larson et al., 2004). An example is a former CEO of Tyco desired a personal loan from the company to avoid personal financial problems that would distract him from effectively managing the business. The CEO was denied the company loan by board members because the board members knew that his request was associated with a personal problem and that shareholders’ money was not appropriate to credit (Larson et al., 2004). Another good example of the benefits of the Sarbanes-Oxley Act is the WorldCom story. WorldCom directors, all twelve of them, had to pay approximately $25 million of their money to settle shareholders’ claims (Graham and Roth, 2008). Also, the Act established an age of regulated fiduciary responsibility for CFOs and CEOs. The Act forced companies to upgrade the professional qualification of their organizations to operate efficiently. Finally, the Act via the PCAOB mandates that any person associated with public accounting organization must disclose any criminal action against them, along with any criminal convictions within the last five years (Larson et al.,

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