The Pros And Cons Of Sarbanes-Oxley Act

There were a lot of pointing fingers in the accounting scandals that plagued the economy in the 1990s within the companies involved. Congress decided to hold the CEO and CFO responsibility for any financial misreporting. This made the third most important causes of creating SOX.

Sarbanes–Oxley, Sarbox or SOX, is a United States federal law which was introduced in 2002. It is also known as the “Public Company Accounting Reform and Investor Protection Act” and “and 'Corporate and Auditing Accountability and Responsibility Act”. The main objective of the act is to protect investors by improving the accuracy and reliability of corporate disclosures. New aspects are created by SOX act for corporate accountability as well as new penalties for wrong doings. It was basically introduced after major corporate and accounting scandals including the scandals of Enron, WorldCom etc so that the same kind of scandals do not repeat again.

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.

Most people agree that the SOX Act provides the most comprehensive amendments to the 33 and 34 Acts in United State history. Due to the stricter financial law from the Sarbanes-Oxley Act, other international countries have adopted similar laws such as Australia, France, Germany, India, Italy, Japan, South Africa, and Turkey to help with it came to financial reporting. The SOX Act have 11 mandate and requirement for corporations to report their financial statements. The following are the 11madate titles and requirement under the Sarbanes-Oxley

As a result of SOX, top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Also, SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements.[1]

The act is an exhaustive piece of legislation that contains eleven major section and some of the most important titles outline requirements on auditor independence, analyst conflict of interests, corporate responsibility, enhanced financial disclosures, internal controls assessment, and corporate fraud accountability (Bainbridge, 2007). One of the main benefits of the legislation is to establish auditor independence requirements and rules for the prevention of conflicts of interest in particular by prohibiting auditing firms from offering other services. Prior to Sarbanes–Oxley, the auditing professionals were self-regulated and the decisions that controlled the industry, such as violation of ethical standards, were made largely by auditors themselves (Verschoor, 2012). In order to prevent conflict of interests, the Sarbanes–Oxley Act grants the PCAOB authority to oversee and regulate auditing firms, conduct investigations, and impose disciplinary sanctions against accounting firms (McDonough, 2004). Another provision of the Act is requiring senior executives to be personally accountable and responsible for the financial information reports by certifying that the information is correct.(Welch, 2006). A byproduct of the law implementation is a significant quality improvement on accounting practices;

The Sarbanes-Oxley Act was a law created in 2002 to ensure that the boards of public companies oversee their companies in a more competent and transparent way in order to protect investors. Section 302 refers to the obligations of the corporate officers who sign the financial reports. The officers are responsible for verifying that the report is accurate and represents a true picture of the company’s financial condition. Section 401 states that The Commision must evaluate the financial reports. Section 404 covers the company’s internal control structure and the requirements of the accounting firm in assessing internal controls and reporting procedures. Section 409 requires a company to disclose information on changes to financial conditions or

The Sarbanes-Oxley Act of 2002 – its official name being “Public Company Accounting Reform and Investor Protection Act of 2002” – is

The act is also referred to as Sarbox or SOX. The Securities and Exchange Commission (SEC) is responsible for enforcement of the law. The Public Company Accounting Oversight Board (PCAOB) was created as a new auditor through SOX. Standards were stipulated for audit reports.

The Sarbanes-Oxley Act, is an act passed by U.S. Congress on July 30, 2002. The primary reason was to protect investors from the possibility of fraudulent accounting activities by corporations. The act is commonly known as SOX Act. The act is named after its cosponsors, U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley. It mandates strict reforms to improve financial disclosures from corporations and prevent accounting fraud. The Sarbanes Oxley Act is arranged into eleven titles. They are Public Company Accounting Oversight Board (PCAOB), Auditor Independence, Corporate Responsibility, Enhanced Financial Disclosures, Analyst Conflicts of Interest, Commission Resources and Authority, White Collar Crime Penalty Enhancement, Corporate Tax Returns, and Corporate Fraud Accountability. These titles provide the description of specific requirements and mandates for the financial reporting. The SOX Act monitors compliance through various sections. However, the most significant sections are 302 (Disclosure controls), 401 (Disclosures in periodic reports), 404 (Assessment of internal control), 802 (Criminal penalties for influencing US Agency investigation/proper administration). As a result of SOX Act, the top management must individually certify the accuracy of financial information. The Act increased the oversight role of board of directors and the independence of the outside

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 (SOX) act was passed into law in 2002. It was created in response to major financial scandals that largely shook the public's confidence in corporate accounting practices. It was a significant response to improper record handling techniques. Under the law, corporate managers must assess whether they have sufficient safeguards to catch fraud and bookkeeping errors. There are consequences for not complying with the provisions of the act and there are certainly advocates and opponents of it. Price Waterhouse Coopers says "Without a doubt, the Sarbanes-Oxley Act is the single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public

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.

This legislation requires “help curb financial abuses at companies that issue their stock to the public. SOX requires that these public companies apply both accounting oversight and stringent internal controls. The desired results include more transparency, accountability, and truthfulness in reporting transactions”. (Wild, 2015, pg. 12).

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.