The Sarbanes Oxley Act

1162 WordsApr 27, 20165 Pages
In the begging of 2000’s after a period of corporate scandals involving large public companies, senate enacted the Sarbanes-Oxley Act, which is referred to as SOX or Sarbon. The act was enacted 14 years ago on July, 30 2002. Also this act was known as the “Public Company Accounting Reform and Investors Protection Act of 2002.” There are many serious accounting and corporate scandals that influenced companies Tyco International, Global Crossing, Enron, WorldCom. For instance the bankruptcy of “ENRON” in 2001 was the one of largest bankruptcy in the U.S. history. That time investors lost $74 billion and thousand employees losing their jobs, retirement savings and medical plans. The time during the scandals happened, where the mentioned…show more content…
This is factual representation of the conflict of interest. There were also problem in board. Board members also involved in scandal. Boards of Directors, especially Audit Committees, are made some mechanisms were financial reporting parts for investors were oversight. They either didn’t perform their obligations, responsibilities or didn’t understand business complex duties to perform their work. Audit Committee members were much dependent on management as should be and they were not perform independent decisions. Stock market analysts, who make decision buy or sell company bonds and stock, and investment bankers that give companies loans or handle mergers and acquisition are another conflict. Banking practices conflict leading to a firm lends large money to the companies without understanding or ignoring the risk of the company. For example in the case of Enron some banks provided large loans, which resulted that investors of this bank as well as clients damaged more than others. Executive compensation is the other issue that made SOX which is the bonus practices and stock options, in combination with instability in stock prices for even small earnings cause the pressure to manage earnings. Those reasons showed that something should be done to protect investors interest and control the situation. The act was passed by Congress

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