For this assignment I am going to try to describe the cost and benefits of implementing the Sarbanes Oxley Act (SOX) for a company. I will then move on to describe what it is, how to go about it, and what a company may need to properly implement it. The Sarbanes Oxley Act was approved and activated in 2002 to protect investors and to renew confidence in American companies from what happened with the fall of companies like Enron, HealthSouth, and WorldCom. This act was trusted to fix or find corruption in the companies and make them liable for their unethical activities. Although this act has proven to have many benefits, the cost of complying with the act for some companies has been much greater than expected. There are also negative …show more content…
There are eleven different titles arranged in the Sarbanes Oxley Act. Where compliance is considered, the most important sections to look at are 302, 401, 404, 409, 802, and 906. However of all these the most controversial section of the Sarbanes Oxley Act is section 404. Section 404 focus is on the internal financial controls with the information that is used to produce the financial statements and to make them more reliable. There are seven ways to accomplish this and they are as followed:
A committee to review procedures and processes
Certifications – where lower level employees certify the correctness of the information they sent up
Coordination - Who is to be the person anyone in the organization can go to with a question? And, who tries to keep everyone on the same page?
Codes of conduct for all employees
Consulting – internal auditors and outside vendors
Documentation procedures
Making a time and responsibility chart (Bowser, Merkel, Lovik, n.d., page 5-6).
The SOX Act is administered by the Securities and Exchange Commission (SEC), which sets the deadlines for compliance and publishes rules on the requirements. Therefore the Sarbanes Oxley Act is not a set of business practices and does not specify how a business should store their records. However the Act does define which records are to be store and for how long.
Cost of the
In this paper, we will be discussing how Sarbanes Oxley has affected the American business and if it has accomplished its goals. The goal of the Sarbanes-Oxley Act (SOX) is to convey confidence in the stock exchange, but it does not defer all immoral activities that take place on the stock exchange. People no matter the law, are responsible for the quality of their work and are accountable for the integrity of themselves and their company. Their own ethical values can take precedence over those set by Sarbanes-Oxley. Not all values are equal in quality, and a person may go above the rules delegated by Sarbanes-Oxley, however, there is another side. Sarbanes-Oxley has created a fear among business practitioners that this new set of standards
Sarbanes –Oxley Act, enacted by the United States congress is aimed at protecting investors. The protection is provided by improving the accuracy and reliability of corporate disclosures.
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
According to Terry Sheridan, in the article, SOX Compliance is Still a Challenge- and Costly- for Many Companies, she states that “Aside from external audit fees,
The Sarbanes Oxley Act is an act passed by the United States Congress to protect investors from the possibility of fraudulent accounting activities by corporation. The Sarbanes Oxley Act has strict reforms to improve financial disclosures from corporations and accounting fraud. The acts goals are designed to ensure that publicly traded corporations document what financial controls they are using and they are certified in doing so. The Sarbanes Oxley Act sets the highest level and most general requirements but it imposes the possibility of criminal penalties for corporate financial officers. The Sarbanes Oxley Act sets provisions that are used throughout numerous amounts of corporations. It holds companies to a larger responsibility and a higher standard with accounting principles and the accuracy of financial statements.
The Sarbanes-Oxley (SOX) Act was passed by Congress in 2002 to address issues in auditing, corporate governance and capital markets that Congress believed existed. These deficiencies let to several cases of accounting irregularities and securities fraud. According to the Student Guide to the Sarbanes-Oxley Act many changes were made to securities law. A new federal agency was created, the entire accounting industry was restructured, Wall Street practices were reformed, corporate governance procedures were changed and stiffer penalties were given for insider trading and obstruction of justice (Prentice & Bredeson, 2010). Tenet Healthcare Corporation, one of the largest publicly traded healthcare companies in the US at the time, was accused
Most people agree that the SOX Act provides the most comprehensive amendments to the 33 and 34 Acts in United State history. Due to the stricter financial law from the Sarbanes-Oxley Act, other international countries have adopted similar laws such as Australia, France, Germany, India, Italy, Japan, South Africa, and Turkey to help with it came to financial reporting. The SOX Act have 11 mandate and requirement for corporations to report their financial statements. The following are the 11madate titles and requirement under the Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 (SOX) was passed by Congress and signed into law by President Bush to “mandate a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud” and applies to all public companies in the U.S., large and small (The Laws That Govern the Securities Industry, 2015). The main purpose of Sarbanes-Oxley is to “eliminate false disclosures” and “prevent undisclosed conflicts of interest between corporations and their analysts, auditors, and attorneys and between corporate directors, officers, and shareholders” (Neghina & Riger, 2009). As a whole, the Sarbanes-Oxley Act is very complex and affected organizations must do their due diligence to ensure they
There are basically three important parts that a business must decide: whether they will/or will not comply with the act, and the costs of compliance. Some smaller public companies have decided to delist themselves as public companies rather than comply with Sarbanes. "I have no problem with these arguments because SOX compliance is costly, but SOX is also an opportunity for public corporation - and the non - profits, private companies, universities, etc., that voluntarily adopt its guidelines - to develop the controls and procedures that were not in place at Enron, WorldCom, Arthur Andersen, et al" (Ohaver 14). One thing that is important for many companies to realize is that the compliance with Sarbanes, may really not be as costly as one expected. Plus, many of the rules for compliance are consistent with proper accounting practices and disclosure that companies should have been doing all along. But, there will be increased costs as process, training and documentation are developed and implemented. Audit costs are the heaviest expenditure of SOX. Many experts believe that since the Sarbanes - Oxley Act has came into existence, audit costs are up 23% and that is only going to be a down payment on more to come (Downey). The additional audit costs can be attributed to the fact that many auditors are double and triple checking their work now, and also looking in
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 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.
According to the textbook, Sarbanes-Oxley Act is a federal statute enacted by Congress to improve corporate governance (Cheeseman, H. R., p.344). It was passed by congress that sets policy and regulates the accounting practices of U.S corporations.
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.
A recent study by Xue Wang (Emory University) tackles how SOX has affected the compensation and turnover rates of CFOs. They play a critical role in developing firms’ financial reporting and making voluntary disclosure decisions. Moreover, CFOs are ultimately responsible for the quality of internal control systems. The study provides some important insights about the impact of SOX on the executive labor market. It shows that requiring more disclosure of information about a firm’s internal controls provides some positive benefits with respect to corporate governance, in this case making it easier for boards to monitor the activities of CFOs. In comparing and contrasting firms with strong internal controls received an increase in salary, bonus, and total compensation in the post-SOX time periods. In contrast, CFOs of corporations reporting a problem with their internal controls incurred a significant reduction in their compensation packages. With respect to CFO turnover, Wang did find that CFO turnover rates generally increased form the pre- to post-SOX period.
This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.