Sarbanes-Oxley Act Pros And Cons

Throughout history and in our own time, legitimate accounting methods have been utilized to fraudulently engage in manipulating activities that results in illicit gains to the perpetrators and losses to individuals and financial institutions.

In the past, many corporate executive have committed various forms scandals in their organizations. Such fraudulent arts are unethical and immoral behavior. This led the US government to form legislation in order to control fraudulent activities; mostly performed by senior officers in the organization. In view of this, this paper will address the following: historical summary on SOX enactment, the key ethical components of SOX, social responsibility implications regarding mandatory publication of corporate ethics, whether the criticisms of SOX implication presents an unfair burden on smaller organizations and suggestions on the improvement of SOX legislation.

Philip H. Siegel, Augusta State University, USA David P. Franz, San Francisco State University, USA John O’Shaughnessy, San Francisco State University, USA

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

The Sarbanes-Oxley Act of 2002, also known as SOX in short, is a U.S. Federal Law passed by President George Bush. The main reason behind passing of the law was that the government needed improved regulations mandating upper management to confirm the reliability and transparency of the financial statements. This bill came about because of the failure and malpractice by companies such as Enron, WorldCom, Adelphia, and Arthur Anderson. These companies caused a major scandal where investors lost billions of dollars resulting in the public losing confidence in the U.S. Securities Market. “The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the Public Company Accounting Oversight Board, also known as the PCAOB.”[1] The act includes 11 sections that are enforced by the Securities and Exchange Commission.

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 Sox act had many different affects on technology such as IT Security, IT operations, IT Managers and IT Compliance requirements. The Sarbanes Oxley Act impacted IT Security by governing how public companies are handing their financial reporting. “In the long term, SOX will affect virtually every aspect of information security” (cmadmin). For the Sox act to work accordingly two departments had to collaborate to bring the Sox to its full effect. Security and IT architects made up the first group and they were responsible for having experience in identity and access management as well as technologies. The second group was made up of finance, legal audit, and compliance professionals who were responsible for planning, testing and executing

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.

The Sarbanes-Oxley Act of 2002 was designed to create oversight and decrease the amount of corruption in the accounting industry. The Article includes a number of provisions dealing with financial reporting, conflicts of interest, corporate ethics and the oversight of the accounting profession, as well as establishing new civil and criminal penalties.

The Sarbanes-Oxley Act(SOX) of 2002 was passed by the U.S congress to protect business investors from fraudulent activities by the corporations. The Sarbanes-Oxley Act passed down in responses to a series of high-profile financial scandals that occurred in the early 2000s at companies including WorldCom and Tyco that rattled investor confidence. The result was almost $6 trillions of stock market value loss. The act, drafted by U.S. Congressmen Paul Sarbanes and Michael Oxley, was aimed at improving corporate governance and accountability.

Cons Even though the advantages of the legislation are clear, there are also disadvantages to consider. The main disadvantage is that it is a costly process. In order to follow the guidelines in the legislation a lot of resources need to be involved, meaning a lot of money goes into simply following the procedure. Government costs also increase to regulate the law Even though the act has very strict rules, there are no rules or guidelines on how to implement the system the act imposes.

One of the big advantages of this act is that companies are being held more accountable. There are specific rules about how the company must handle their accounting practices. The Sarbanes Oxley Act dictates what a company can, and cannot do. This means that the accounting of the company will strive to be more accurate.

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

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

The second problem is public companies have always had to put up with more regulations than private ones because they encourage ordinary people to risk their capital. After the 2007-2008 financial crisis the regulatory burden has become heavier. America has introduced new rules, from the 2002 Sarbanes-Oxley legislation on accounting to the Dodd-Frank financial regulations of 2010. Sarbanes-Oxley increased the annual cost of complying with securities law from $1.1 million per company to roughly $2.8 million. The third problem is growing short-termism. The capital markets have increased their power dramatically with the rise of huge institutional investors and intensification of shareholder activism. Mutual funds count their money in trillions rather than billions. Hedge funds are not afraid to take on corporate Goliaths such as McDonald’s and Time Warner if they think they are failing. The average life expectancy of public companies shrank from 65 years in the 1920s to less than ten in the 1990s. The life expectancy of CEOs has also fell from 8.1 years in 2000 to 6.3 years in 2009. Investors have to right to fire managers because they own the company. Companies have to find a balance between the short and long term, satisfying the market’s demand for profits today, while planning for the future. Owners and regulators seem to be making it harder for bosses to look beyond quarterly earnings and board are devoting less time to strategy and more enforcing regulations. France’s