By Steven Williams
Activity 7
MGT7019-8
NorthCentral University
Abstract
This paper identifies issues, activities and practices,in financial reporting by public companies that were sanctioned by the Sarbanes-Oxley legislation Act of 2002 (SOX). This act was passed with the intent to restore public confidence and increase transparency in financial reports of publicly held companies, due to the aftermath of the financial scandals that plagued companies such as Enron and Worldcom (Jennings, 2012). The problem to be investigated is the ethical issues that were legislated by SOX, the cost associated with the implementation of the new act on different stakeholders, and new governance practices required of public companies to insure compliance with the new act.
Introduction
SOX was implemented in 2002 as “an act to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes” (Jennings, 2012, p.212). This act focused primarily on the independence of auditors who are responsible for auditing public companies, the corporate responsibilities of Chief Executive Officer(CEO) and Chief Financial Officer(CFO), the proper disclosure of financial statements, the conflict of interest between the parties involved, criminal fraud accountability of those involved, and the imposition of the penalty in case of violations. The Public Accounting oversight Board (PAOB) was then created to enforce all the issues identified under the above act (Jennings, 2012). This legislation was imposed on employees of public companies who are responsiblefor disclosing financial statements. Although this legislation seemed new, it can be argued that all the issues addressed could have been covered by enforcing already existing code of ethics within any of these organizations.
