The Sarbanes-Oxley Act of 2002

2864 Words May 13th, 2012 12 Pages
The Sarbanes-Oxley Act of 2002
Jayne Diaz
BUS 591: Financial Accounting & Analysis
Professor Susan Ayers
March 26, 2012 The Sarbanes-Oxley Act of 2002

Prior to 2002, there was very little oversight of accounting procedures. Auditors were not always independent and corporate government procedures and disclosure provisions were inadequate. Sometimes, executive compensation was tied to the stock of the company which created an incentive to manipulate the stock price by using fraudulent accounting practices to make it look like companies were making more money than they actually were. The Sarbanes-Oxley Act of 2002 was introduced because of the collapse of several major corporations due to these practices. This paper will discuss the
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Title II - Auditor Independence Section 201. Services Outside the Scope of Practice of Auditors. Non-independent auditors were seen as huge contributors to major corporate scandals because of their own financial interests within a company. Title II, Section 201, was created to focus on such issues, which constricts future auditor conflicts through measures designed to improve auditor independence. Section 201 prohibits any company performing an audit from providing any of these nine non-audit services, as listed in the Public Law 107-204 - July 30, 2002 document (107th Congress, p. 771-772):
(1) bookkeeping or other services related to the accounting records or financial statements of the audit client;
(2) financial information systems design and implementation;
(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
(4) actuarial services;
(5) internal audit outsourcing services;
(6) management functions or human resources;
(7) broker or dealer, investment adviser, or investment banking services;
(8) legal services and expert services unrelated to the audit; and
(9) any other service that the Board determines, by regulation, is impermissible.

Title III - Corporate Responsibility Section 302. Corporate Responsibility for Financial Reports. “The essence of Section 302 of the Sarbanes-Oxley Act states that the CEO and CFO are directly responsible for the accuracy, documentation and