The Sarbanes-Oxley Act Of 2002 Case Study

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) is a legislation enacted in 2002 under the sponsorship of U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The law introduced increased government oversight for publicly held companies. It also imposes additional management responsibilities and corporate operating costs on companies trading under SEC regulations. Sarbanes-Oxley was enacted in direct response to a number of corporate accounting scandals, including those of Enron, Tyco International, and WorldCom.

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 Sarbanes - Oxley Act of 2002 is the most important piece of legislation since the 1933 and 34 securities exchange act, affecting everything from corporate governance to the accounting industry and much more. This law was in direct response to the failure of corporate governance at Enron, Tyco, and WorldCom. The Sarbanes - Oxley seeks to bring back the confidence in all publicly held corporations to the shareholders, while placing more responsibility on CEOs and CFOs for the actions of the corporation. "Sarbanes - Oxley is more than just another piece of legislation - it has become synonymous with a new culture of corporate accountability and reform1." The SOX, as it has come to be known, covers a myriad amount of corporate

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.

However, the application of SOX has brought on regulations that public companies must put in place and follow to prohibit these unethical occurrences. One major advantage for associated with SOX is that more thorough audits are being conducted by auditing firms. Audits being conducted more thoroughly will provide accuracy and an increased reliability of financial data. This will affect taxes in a positive way and provide firms with an advantage. Causholli, Chambers, and Payne (2014) suggest that prior to the implementation of SOX in 2002, “an auditor’s opportunity to sell additional non-audit services in the subsequent year, coupled with the client’s willingness to buy services, intensified the economic bond between auditor and client, in turn reducing auditor independence and the quality of financial reporting” (p.681). The regulation of auditor provided non-audit tax services has increased the reliability of tax and financial reporting within companies. Seetharaman, Sun, and Wang (2011) explain that “in a post-Sarbanes-Oxley environment, the benefits of auditor-provided non-audit tax services (NATS) seem to manifest themselves in higher quality tax-related financial statement management assertions” (p. 677).

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.

Prior to the 2002 scandal of Enron, the standards for financial reporting were much more relax than the regulations that businesses encounter today. The Sarbanes Oxley Act of 2002(SOX) came into play as a response to the unruly financial reporting to the public from companies such as Enron, Arthur Andersen, Tyco and WorldCom. The public scandals created insecurities for any American to invest in big companies, due to fear of additional fraud encounters. The Sarbanes Oxley Act was enacted to try create some trust between these big companies and the hardworking individuals who were investing in them. The fraud scandals were front page news stories and the government hoped that passing this legislation

SOX requirements reduce fraud and increase corporate governance across both for-profit and not-for-profit organizations. The SOX Act’s requirements changed corporate governance in many ways (Maleske,

Sarbanes-Oxley (SOX) was created to address the reoccurrence the likes of the several major scandals of the past. The nature of those past years scandals made it clear that preventative measures was a possible way to prevent any future scandals. And the efficacy of Sarbanes Oxley Act, many people as well as companies believed that fraud is easy to prevent.

The Sarbanes-Oxley Act of 2002, also known as the SOX Act, was created in response to the series of misleading and outright fraudulent activity of big business in 1990s (Lasher, 2008, p. 187). Multiple publicly-traded businesses raised up their stock prices by “publishing false or deceptive financial statements” (Lasher, 2008, p. 187). The most notable company to crash were Enron, WorldCom and Tyco. Eventually almost one thousand publicly traded companies restated their financial statements which resulted in almost $6 trillion of stock market value disappearing (Lasher, 2008, p. 187). In response to these events, Congress drafted and passed the Sarbanes-Oxley Act (SOX) of 2002.

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 are put in line to conduct themselves in a manner that promotes public trust. Through defining a code of ethics, organizations can follow, market becomes fair for investors to have confidence in the integrity of the disclosures and financial reports given to them. The code of ethics include “the promotion of honest and ethical conduct, requiring 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 Sarbanes-Oxley Act was signed into law from public demand for a reform. Even though there are some criticism about it, the act still stands to prevent and punish corporate fraud and malpractice.

Enron was a one-hundred billion dollar company in 2000, until questionable accounting practices, known as mark-to-market, saw their stock prices drop from ninety dollars per share to just pennies (Ferrell, Hirt, & Ferrell, 2015). All of the top employees were charged and convicted of various crimes and sentenced to time in prison. Because of loss of confidence among investors, the government put into place the Sarbanes–Oxley Act of 2002 (SOX). SOX is a set of requirements put into law in an attempt to regulate corporations’ accounting practices, in an attempt to protect stockholders. Sox has proponents, but it also has it’s critics. Some experts claim that it has helped weed out some of the corruption in business accounting. While other

Congress established the Sarbanes-Oxley Act of 2002, which is otherwise called the Public Company Accounting Reform and Investor Protection Act, in the beginning of corporate and accounting scandals that prompted liquidations, serious stock misfortunes, and a loss of trust in stocks (Batten, 2010). The demonstration forces new obligations on corporate administration and criminal authorizes on those supervisors who spurn the law, and it

Every company should have a code of ethics, because it maintains the company’s values, culture, and reputation. It communicates to employees that the company is committed to doing business responsibly. It also guides employees’ conduct and how they should interact with each other, customers, vendors, contractors, and the general public. Code of ethics set clear standards and expectations for employees, and if everyone in the company adheres to these policies, then the company will create a culture that reflects the code. Companies with code of ethics also show that they are committed to integrity and social responsibility, which in turn will make their customers feel more reassured, and help with the company's bottom line as well as protect the company from potential liability.