The Effect Of The Sarbanes-Oxley Act

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.

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 was implemented and designed to “protect the interests of the investing public” and the “mission is to set and enforce practice standards for a new class of firms registered to audit publicly held companies” (Verschoor, 2012). During the early 2000 's, the world saw an alarming number of accounting scandals take place resulting in many corporations going bankrupt. Some of the major companies involved in these scandals were from Enron, WorldCom, and one of the top five accounting and auditing firms, Arthur Andersen. These companies were dishonest with their financial statements, assuring the public the company was very successful, when in reality they were not. This became a problem because if the public believes a company is doing well, they are more likely to invest in it. That is to say, once these companies were exposed, it caused a number of companies going bankrupt and a major mistrust between the public and the capital market. Consequently, the federal government quickly took action and enacted the Sarbanes-Oxley act of 2002, also known as SOX, which was created by the Public Company Accounting Oversight Board (PCAOB), and the Securities and Exchange Commission (SEC). Many have questioned what Norman Bowie (2004) had questioned,

The Securities Act of 1933 regulated the securities and the accounting standards before the Sarbanes Oxley Act was passed. Under the Securities Act, corporations and their investments bank were legally responsible for telling the truth and making sure the financial statements were audited correctly. Although corporations were responsible, the CEOs were not which was meant it was hard to prosecute them for fraud. The Sarbanes-Oxley Act was enacted in response to a series of high profile financial scandals that occurred in the early 2000s at companies including Enron, WorldCom, and Tyco that rattled investor confidence. The Sarbanes Oxley Act was named after

Prior to the advent of the Sarbanes-Oxley Act of 2002, referred to herein as “SOX,” the board of directors’ pivotal role was to advise senior leaders on the organization’s strategy, business model, and succession planning (Larcker, 2011, p. 3). Additionally, the board had the responsibility for risk management identification and risk mitigation oversight, determining executive benefits, and approval of significant acquisitions (Larcker, 2011, p. 3). Furthermore, for many public organizations, audit committees existed before SOX and provided oversight of internal processes and controls. Melissa Maleske (2012) advised that the roles and responsibilities of the board were viewed “…from a perspective that the board serves management” (p. 2). In contrast, Maleske (2012) noted that SOX regulations altered the landscape “…to a perspective that management is working for the board” (p. 2). SOX expanded not only the duties of the board and the audit committee, but also the authority of these bodies (Maleske, 2012, p. 2).

Since the act was established, Congress was placed under heavy fire. In the eyes of its opposers, SOX will do more to hurt than it helps. Critics state that the law puts too much power into the hands of the PCAOB. They are given almost unlimited power without any checks or balances. “Sarbanes-Oxley empowers the Board with the most authoritarian powers imaginable.

In reaction to a number of corporate and accounting scandals which included Enron Congress passed The Sarbanes-Oxley Act of 2002 (SOX) (Sarbox) also known as the "Public Company Accounting Reform and Investor Protection Act” and the "Corporate and Auditing Accountability and Responsibility Act" was enacted July 30, 2002. The Sarbane-Oxley Act is a US federal law that created new and expanded laws regarding the requirements for all US public company boards, management, and accounting firms. The act has a number of provisions that apply to privately owned companies. The Act addresses the responsibilities of a public corporation’s Board of Directors, adds criminal penalties for misconduct, and requires the SEC to create regulations that define how public corporations are expected to comply with the law. The SOX increases the penalties a company pays for fraudulent financial activity, and requires top management to provide individual verification to certify the accuracy of financial information, while also increasing the oversight role of a company’s Board of Directors and the independence of outside auditors.

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 law was passed in 2002, this law came in effect after numerous of accounting fraud cases in corporations. A few cases that have caused the Sarbanes-Oxley Act to pass were the waste management scandal in 1998. A Houston waste management company has reported false financial earning of over 1.7 billion dollars. The top executive chairmen and Arthur Andersen Company work together by falsely increasing the company’s property depreciation on the balance sheet. Once new management became a part of the company and viewed the books they notice the things the top executives were doing. The consequences resulted in settled a shareholder class action for $457 million and Arthur Andersen was fined by the SEC for $7 million dollars.

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

Will the Sarbanes-Oxley provisions be effective to prevent another financial statement fraud? Since SOX was enacted, we have seen that it improves financial reporting quality, strengthens internal control and corporate governance, requires an enhanced disclosure of the financial statements, and increases oversight on public accounting firms. The incidence of fraud has been declining too. But, it does not necessarily mean that it can guarantee the prevention of an another financial statement fraud like Enron and WorldCom. Despite these enhancements in controls, detective and preventive measures, it cannot eliminate fraud completely since if someone wants to commit fraud, he or she will most likely find a way to do it no matter what controls

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 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

The Sarbanes-Oxley Act, enacted as a reaction to the WorldCom, Enron, and other corporate scandals, improved the regulatory protections presented to U.S. investors by adding an audit committee requirement, intensification of auditor independence, increasing disclosure requirements, prohibiting loans to executives, adding a certification requirement, and strengthening criminal and civil penalties for violations of securities laws.