The Sarbanes-Oxley Act

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 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

Since the financial crisis investors have become less confident in the companies within the market. In order to restore confidence within the market and the audits of their financial statements Senator Sarbanes and Representative Oxley created the legislation known as the Sarbanes Oxley Act which came into effect in 2002. The legislation created major regulations on company financial reporting and the regulation of it. Forcing management to be accountable for the financial reporting and internal controls within their company and requiring the audit committees to report on their opinion of the company’s internal processes. (Soxlaw.com)

Section 404, places great emphasis on internal controls and it is apparent that in the last couple of years this sections total costs have been going down severely. However, it is still high enough to maintain that it deters smaller companies from having enough money left over to be more innovative (Prince, 2005). As it was stated above the investors were the people who were supposed to benefit the most, but instead due to these high rules and compliances, companies have to follow, it is the auditors who gain the most. There are two ways to solve this problem; the first method is to not have a one-size-fits-all approach when it comes to the different sizes in company, and subsequently auditors understanding and focusing more on lower risk accounts and moving to the Higher risk accounts (Basilo

The SOX Act crafted new standards for corporate accountability. The act also created new penalties for wrongdoing and fraudulent practices. These penalties included fines and time in federal prison. This law changed the way corporate boards and executives interact with each other and with corporate auditors. It removed the all-to-common defense of "I wasn't aware of financial issues" from CEOs and CFOs, holding them accountable for the accuracy of the company’s financial statements. In addition to the executives, the auditors who did the reports were also liable for the contents of the reports, and could be fined and jailed as well. This did away with another all-to-common defense of “I wasn’t aware of false reporting by the company.” The Act specifies new financial reporting responsibilities, including adherence to new internal controls and procedures designed to ensure the validity of their financial records. That is to say, checks and balances were put in to place so that a company’s accounting firm that produced financial statements could not also be an independent auditing firm for the same company. While this makes common sense, it was not a law, and a few

According to an article written by D. King and C. Case in the Journal of Business and Accounting in 2014 “the Sarbanes-Oxley Act (SOX) of 2002, was no doubt, the most significant accounting and auditing legislation enacted in recent history.” On July 30, 2002, President George Bush signed into law the Sarbanes-Oxley Act due to the “Enron debacle” and other cases of corporate financial wrongdoings. The act requires that even the “top executives” of corporations must certify financial reports are accurate and be held accountable in not doing so.

One of the arguments critics had about the law was the “mandate that required public companies to obtain an independent audit of their internal control practices” (Hanna, 2014). The costs associated with this were unfavorable to small companies in theory (Hanna, 2014). Although there have been amendments to the act that benefit smaller cap companies, surveys have been conducted that seem to indicate that the act has prevented some companies from going public, and some public companies considering going private because of

The Sarbanes-Oxley (SOX) Act of 2002 was signed into federal law on July 30, 2002. The stated purpose of the law is "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the security laws, and for other purposes." The law has influenced long term changes in the way publicly traded companies manage auditors, financial reporting, executive responsibility and internal controls. SOX is considered the most substantial piece of corporate regulation since the securities laws of the 1930's (Stults, 2004).

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.

Different portions of legislation have had an impact on corporations, accounting firms, and investors like Sarbanes-Oxley. Sarbanes-Oxley was passed by Congress in 2002 as a direct result of the accounting scandals that plagued the public equity markets during the late 1990s and early 2000s. Sarbanes-Oxley was developed to be a series of measures, safeguards, guidelines, and criminal punishments in order to prevent future accounting scandals on the scale of Enron and Worldcom. Sarbanes-Oxley has profoundly impacted both management and accountants although in mostly similar ways. The following exploration will compare and contrast these views held by management and accountants regarding Sarbanes-Oxley.

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 which is also popularly known as the public company accounting reforms is considered as one of the landmark acts if one talks about the way the internal controls are talked about. What this act has done is that it has set pretty much the new and much more controlled requirements as far as the management of the public limited companies is concerned and how they are supposed to take care of their management and overall business conduct (Hostak et al, 2013). At the same time, the interesting thing about the fact is that there are some provisions of the act that also apply to the public accounting firms (Hostak et al, 2013).

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 contemporary business world is characterized by the rise of corporate governance reforms. The United States Government has responded to increasing demands for more transparent business practices and monitoring activities by issuing legislation affecting companies across industry segments. Likewise, the accounting industry has responded to this changing business environment by refining its service offerings in order to assist businesses with their increasing compliance obligations. The Affordable Care Act of 2010, a hallmark of the Obama Administration, launched a healthcare reform that impacted the entire American community. Based on the accounting industry’s connection with corporate governance issues, the implementation of the

Along with the demand for a more universal form of accounting report come many challenges. Many of them are in the form of the Sarbanes-Oxley Act. Scandals within the accounting departments in companies such as Enron, Rite Aid, and Xerox caused this act to be created. The Sarbanes-Oxley Act created the Securities and Exchange Commission, SEC, which helped standardize all financial information that was passed along to the stockholders. Auditors were affected as a part of the act in the sense that they became more independent and strong. The audit committee’s became independent members with prior financial expertise. They were however limited to no more than a 5-year partner rotation within their respective firms. CEO’s and CFO’s were also to be help more accountable for their financial reporting. CEO’s and CFO’s are now required to personally sign off and certify financial statements. If there is a mistake they forfeit their entire bonus. Within each organization there is also requires being an internal checks and balances process to prevent and detect possible fraud. Most of all, there the Sarbanes-Oxley Act establishes a code of ethics for all senior financial officers. This act is to ensure that public trust is maintained at all times.