The SOX Act

Organizational misconduct is the chief cause behind corporate accounting scandals. The trusted executives of the corporation participation in actions during a scandal are corrupt and illegal. In the United States, the Securities and Exchange Commission (SEC) is typically the government agency that investigates such scandals. One of the most notorious corporate accounting scandals in the United States is the HealthSouth Corporation scandal of 2003. HealthSouth Corporation is one of the United States largest health care providers with locations nationwide. A deeper inspection of the HealthSouth scandal is needed to understand how it transpired by assessing how it was executed, the accounting issues and root of the issue, how it was exposed, the results to the company and its officers, and warranted ramifications as an outcome of the scandal.

The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.

The push for ethical practices is hitting financial managers from all angles from patient advocate groups, IRS, regulation bodies, and more. The scrutiny of financial reports has never been more important. One area under the microscope in financial reporting by hospitals seems to be its tax exempt status. The potential for tax misconduct is high and calls into question if hospital should be tax exempt (Valletta, 2005). This area is calling strongly for strict ethical guidelines. Health care organizations operate in a different market segment. Publicly traded organizations need to watch their earnings reports, while the health care sector is concerned with payments, hospital length stays, and admissions. To become more transparent and reduce the chances of unethical behavior some hospitals, including the Mayo Foundation, New York Presbyterian, and Ascension Health post audited financial statements online (Valletta, 2005). In another attempt to curb financial mishaps and abuses the financial statements for the medical industry must be signed off on by CEOs and

The main objective of the Sarbanes-Oxley act was to reduce fraud. So far that objective seem to have been obtain. Since SOX was enacted, there has not been a major domestic corporate financial scandal uncovered other than the options back-dating scandal that occurred before July 2002 (Jahmani & Dowling, 2008). It is a tax advantage because companies and investors are not losing money.

The purpose of this memo is to provide you with information on the Sarbanes-Oxley Act of 2002 (SOX Act) and to describe the importance of its implementation, per your request. The SOX Act was first introduced in the house as the “Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002” by Michael Oxley on February 14, 2002. Paul Sarbanes, a Democrat U.S. Senator, collaborated with Mr. Oxley, a Republican US Senator, creating significant bipartisan support. The SOX Act was enacted by the end of July 2002 in response to recent corporate accounting scandals. The twin scandals that were impetus for the legislation involved the corporations of Enron and WorldCom.

The Sarbanes-Oxley Act (SOX) of 2002 was implemented to deter fraudulent activities amongst companies by monitoring and auditing financial activities as well as set up internal controls to aid in the safeguard of company funds and investor’s interest. SOX also regulates the non-audit tax services (NATS) that can be performed by an auditing firm. SOX was passed by Congress in 2002 in an attempt to address the unethical behaviors of corporate firms such as Enron, WorldCom, Sunbeam, and others (Raabe, Whittenburg, Sanders, & Sawyers, 2015). Raabe et al. (2015) continues explaining that SOX was created in response to the inadequacies

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 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 Sarbanes-Oxley Act, also known as SOX Act, is a federal law that was passed on July 30, 2002, by Congress. This law was established to help set new or enhance laws for all United States accounting firms, management, and public company. The SOX Act would now make corporate executives accountable for their unethical behavior. This bill was passed due to the action of the Enron and Worldcom scandal, which cost their investors billions of dollars, caused their company to fold, and questioned the nations' securities markets.

Senators Paul Sarbanes and Michael Oxley were the sponsors of the Sarbanes-Oxley Act of 2002, which represented a tremendous change to federal securities law. The act was signed into law by president George W. Bush who described it as “the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt1.” After the financial scandals implicating Enron, WorldCom and Global Crossing, the public needed to restore their trust in the public financial statements of the companies and that’s where the SOX Act of 2002 came into place. The act is composed of eleven titles which require numerous reforms to prevent accounting fraud, increase corporate responsibilities, among others.

There used to be a time in the United States when there were no regulations in place to protect the public from corporate greed and deceit. Publically traded companies used the auditors they had on retainer to audit their financial statements. There was no reason to believe that such large corporations would allow their share holders to fall. That fairytale came to an end with the discovery of the Enron and WorldCom scandals. These nightmares made the public “wake up” and realize that nothing was required of these companies to prove their statements or protect their shareholders. Regulation was

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 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

The HealthSouth Corporation was started in 1984 by Richard Scrushy with hopes of becoming one of the largest healthcare companies in the country. It was doing quite well by 1996 with a market value of nearly $12 billion and was one of the United States largest healthcare firms. This all fell apart in 2003 when it was discovered that Scrushy and his employees had committed fraud in the estimated range of almost $2.7 billion (Daigle, Louwers and Morris 887). Scrushy, over the years, had brought on many new faces to the company. Many of these employees were friends of Scrushy from previous business ventures and business meetings. These employees and the others involved in the fraud were given the name ‘family’; highly due to the fact that they all knew what was happening and not one wanted to go to the authorities to confess. It was after the fraud had gone on for nearly six years that the former CFO Weston Smith tipped off federal investigators.

Sarbanes Oxley (also known as SOX) is legislation passed by the United States Congress in 2002, in the wake of a number of major corporate accounting scandals. Enron, WorldCom, Tyco, and others cost investors billions when their stock prices collapsed. As a result of SOX, top management must separately certify the accuracy of financial Furthermore, consequences for fraudulent financial activity are much more severe. Also, SOX intensified the management role of boards of directors and the independence of the external auditors who review the accuracy of corporate financial statements. The primary changes caused the formation of the Public Company Accounting Oversight Board, the assessment of personal liability to auditors, executives and board members and creation of the Section 404, which recognized internal control events that had not existed before the legislation.