With regards to internal control and evaluation, the “Sarbanes-Oxley Act of 2002” is the manuscript to address fraud and risking the trustworthiness of the corporation.
Orchard & Butterfield (2009) studied the internal control of construction company's revealed the following “business circle to be cardinal focus for financial managers and auditing firms to avoid falling short of the Act.
Each business circle is important or worth appropriate recordings and must be recorded in line with section 404 of the “The
Sarbanes-Oxley Act of 2002”. Gupta, (2008) research revealed that financial managers need to be custodians of people’s money “but not to take people’s money to be theirs”. Risk assessment, monitoring and evaluations are necessary
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.
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.
In this paper, I will be discussing the Sarbanes-Oxley Act of 2002. I will divide the paper up into four sections: the history of the act, trace its implementation, discuss its impact on society, and analyze the efficiency of the act. The act itself is made of of 11 sections or “titles”. Each title is a major key point in the act which also goes into more depth by containing several sections within it. This paper will me going over all of the sections covered in the act, but will focus on the major sections that have proven this act to be efficient in its purpose and the negatives as well. This act has been quite controversial regarding its strengths and weaknesses, but it contains some key values that should be used as a
The Sarbanes-Oxley Act of 2002 (SOX) was passed by U.S congress in 2002 to protect investors from fraudulent accounting activities by corporations. Whether the organization is big or small, the act mandates strict reforms to improve financial disclosures from corporations, helping to prevent accounting fraud. It is a federal law that established new and expanded requirements for all U.S. public company boards, management, public accounting firm's, as well as privately held companies. SOX requires top management individually certify the accuracy of financial information, and includes penalties for fraudulent financial activity. The bill was enacted in response to a large number of major corporate and accounting scandals the cost of investors
The Sarbanes-Oxley Act of 2002 (SOX) was enacted to bring back public trust in markets. Building trust requires ethics within organizations. Through codes of ethics, organizations conduct themselves in a manner that promotes public trust. Through defining a code of ethics, organizations can follow, the market becomes fair for investors to have confidence in the integrity of the disclosures and financial reports given to them. The code of ethics includes the promotion of honest and ethical conduct. This code requires disclosure on the codes that apply to senior financial officers and including provisions to encourage whistle blowing, a Business Ethics Perspective on Sarbanes-Oxley and the Organizational Sentencing Guidelines. The Congress signed the Sarbanes-Oxley Act into law in response to the public demand for reform. Even though there is some criticism of it, the act still stands to prevent and punish corporate fraud and malpractice.
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 Sarbanes-Oxley Act was passed in 2002 as a response to a wave of corporate accounting scandals that damaged public trust in the controls of the US financial system. SOX therefore was created in order to create the framework for better control over accounting information and better accountability among members of senior management. Damianides (2006) notes that much of the burden of providing these tighter controls has fallen to IT departments. The Act not only sets out prescriptions for tighter internal controls, but effectively mandates that senior IT managers will need to communicate those controls to their CFO and CEO, as well as to external auditors.
The authors note that in general Sarbanes-Oxley has succeeded in its mandate. There have not been, for example, any of the corporate accounting scandals of the Enron or Worldcom type that occurred before the law came into effect. There have been scandals in business, and failures, but none fell under the auspices of Sarbanes-Oxley. The failures of AIG and Lehman Brothers did not occur because of accounting scandals but rather because of business failures of other types. The Bernie Madoff scandal has also been cited by some SOX opponents, but that did not occur with a public company and was therefore not under the auspices of SOX either.
The Sarbanes Oxley Act of 2002, better known as SOX, was passed in response to the scandals that had plagued many companies, from WorldCom to Enron, in the US. SOX was intended to restore investor confidence, decrease fraud and mismanagement while enhancing transparency and corporate governance (Ernst & Young). With the passing of SOX, the Public Company Accounting Oversight Board (PCAOB) was established to oversee the auditing firms that allowed, whether knowingly or not, these companies to commit fraud and fraud the American people out of their life savings (Harris). With all laws, there will always be some successes and failures. With that you will also have some who feel the law needs to be repealed or be reevaluated to decrease the
Due to SOX Act, Tens of thousands of companies face the task of ensuring their accounting operations of following the Sarbanes-Oxley Act section. Auditing departments typically first have a comprehensive external audit by a
This chart from the site “Chaos of Business” shows the large decline of the Enron stock when it was being investigated by the Securities and Exchange Commission. People who had shares of the stock had lost almost all of their money they invested into the company. This chart shows that the share price dropped from $84 per share to $0.01 per share in about ten months. It seems like not a big deal, but in reality people usually buy hundreds of shares in a company, so that loss of $84 can calculate to about $25,200 if a person has 300 shares lost. This chart shows how quickly the money was lost and how badly it affected the people who owned shares of Enron.
In July 2002, the United State Congress passed a legislation known as the Sarbanes-Oxley Act (often shortened to SOX). The act was drafted by United States congressmen Paul Sarbanes and Michael Oxley and was aimed at improving corporate governance and accountability. This legislation was passed to protect the general public and shareholders from fraudulent practices and accounting errors in the enterprise, in addition to improving the accuracy of corporate disclosures. The United States Securities and Exchange Commission (SEC) administers the act, which sets publishers rules on requirements and deadlines for compliance (Rouse, n.d.).
The Sarbanes Oxley Act of 2002 was created to extinguish doubts on the financial system that were introduced during the financial collapse of Enron, a resource trading company that was brought to its need by corporate greed and corruption. Enron’s downfall could have been avoidable should there have been any transparency into the finances of the company for the shareholders. It was for this fact that the Sarbanes Oxley Act introduced many new factors of protection for transparency, separation of duties and tougher penalties for those who violated investor trust. All of these facts will be reviewed and discussed to show their impacts on businesses still functioning today.
Yielding too much power results in greater temptation to cheat the system. In light of the shocking truth regarding the Enron scandal and dissemination of one of the “Big Five” accounting firms, Arthur Andersen, more policies and procedures are in place to separate duties and ensure that no single individual can destroy or steal from an entire company. One of the most well-known accounting litigation that was formulated after the Enron scandal is the Sarbanes-Oxley Act of 2002 which force companies to pay close attention to internal controls (Nobles, Mattison, & Matsumura, 2014). Internal controls allows a company to encourage accuracy and reliability of data sent through various individuals responsible for the financial well-being of the
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive