Sarbanes-Oxley Act of 2002 Analysis
ACC561
May 15, 2015

Sarbanes-Oxley Act of 2002 Analysis
The American government has taken significant measures to protect the public from fraud with-in corporations. Many federal laws have been enacted, regulatory bodies created and empowered to monitor and enforce those laws. The Sarbanes-Oxley Act, (SOX), of 2002 was an attempt to address several violations to the public trust from corporations that continued to occur despite the previous attempts to govern corporate responsibility to the public. This act specifically tried to reduce unethical corporate behavior and increase public confidence in the financial reporting of corporations (Kimmel, Weygandt, & Kieso, 2011). This paper will address if the requirements of SOX will be enough to prevent future fraud in the corporate environment.
Regulatory Environment Several laws and regulations have been developed to attempt to control business practices. Corporations must follow rules that were established to protect the public from fraud such as fair practice laws, and regulatory agencies must ensure compliance with these long-standing regulations. The U.S. Securities and Exchange Commission, (SEC), “was developed to help protect investors, maintain fair, orderly, and efficient markets, and facilitate capital information” (U.S. Securities and Exchange Commission, 2015). The SEC was created in 1934 in response to the loss of public confidence in financial markets after the stock market crash of 1929 and the years following the Great Depression. The main goal of establishing the SEC was to restore investor confidence in the markets by providing more precise and reliable information for investors and creating an environment that protected the investor first. Both public and private investors can invest in corporations, and the SEC requires disclosure of meaningful financial information so that those investors can make sound investment decisions (U.S. Securities and Exchange Commission, 2015). The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds and is primarily concerned with the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud (U.S. Securities and Exchange Commission, 2015). The SEC has enforcement authority and brings civil enforcement actions against the public investors and companies for violating laws.
Laws protecting the public from fraud within corporations The Securities Act of 1933 required that investors received financial information for securities being offered for public sale and aimed to prohibit misrepresentation and fraud in the sales of securities. This Act requires the registration of securities that will provide the investor with financial disclosure information. The Securities Exchange Act of 1934 created the SEC as discussed above but also gave the agency broad authority over the securities industry and allows the company disciplinary powers over regulated entities (U.S. Securities and Exchange Commission, 2015). The Trust Indenture Act of 1939 states that debt securities may not be offered for sale without meeting the standards of this Act. The Investment Company Act of 1940 aims to minimize conflicts of interest in complex operations of companies “that invest, reinvest and trading in securities and whose own securities are offered to the investing public” by focusing on the disclosure these companies give to that investing public (U.S. Securities and Exchange Commission, 2015). The investment advisers Act of 1940 requires registration of firms/practitioners compensated for advising others about securities. This Act outlines regulations that must be met to protect investors. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 set out to reshape the “U.S. regulatory system in a number of areas including but not limited to consumer protection, trading restrictions, credit ratings, regulation of financial products, corporate governance and disclosure, and transparency” (U.S. Securities and Exchange Commission, 2015). The Jumpstart Our Business Startups (JOBS) Act of 2012 requires the SEC to write rules and issue studies on capital formation, disclosure, and registration requirements (U.S. Securities and Exchange Commission, 2015).
The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002, (SOX), aimed to reform protection of investors by improving the accuracy and reliability of the corporate disclosures after several fraud scandals such as Enron. This Act creates a new oversight board, offers whistleblower protection, and addresses auditor independence, financial analysts’ conflict of interest, corporate responsibility and accountability and financial disclosures of publicly traded companies (Tillman & Fares, 2002). SOX established the Public Company Accounting Oversight Board that is responsible for the auditing of public companies and gives the board authority to establish or adopt auditing, quality control and other standards for preparing audit reports. The board will conduct inspections, investigations and disciplinary proceedings on registered public accounting firms to ensure those companies compile with SOX, professional standard and regulations in the security industry (Tillman & Fares, 2002). A central function of the Board will be to ensure compliance with auditing requirements of SOX. For many corporations, these regulations will require a significant investment to ensure that records management is a corporate initiative as a high degree of integrity must be demonstrated if a company is audited (Stephens, 2005). The law requires that the company’s records must be accurate and accessible for a period of at least seven years. While SOX does not provide accurate record keeping protocols for companies to follow it does state that public companies must have policies and procedures in place to ensure that financial condition information is accessible and not inadvertently destroyed or disposed (Stephens, 2005). Title VIII, the Corporate and Criminal Fraud Accountability Act of 2002 establishes penalties for altering documents and was developed specifically to address loopholes revealed in the Enron Scandal. This provision details specific financial penalties and criminal charges for changing documents and details that altering documents can include not only traditional audit documentation but also can include faxes, voice mail, e-mail, and written communications. Companies must place into place record retention programs that allow retrieval of emails for a period of at least five years (Tillman & Fares, 2002). The Sarbanes-Oxley Act of 2002 has made records management for corporations much more difficult but due to the increased corporate accountability established a new layer of public protection to prevent future fraud.
Conclusion: Specifically evaluate whether SOX will be useful in avoiding future frauds
SOX address specific issues in preventing fraud within corporations. The broad reaching requirements of the Act establish industry regulatory standards that make it much more difficult for companies to falsify financial information and records. The Act also creates a much more regulated auditing process and broadens the information the verification body can use to delve into a corporation's records. This new level of transparency offers a level of protections to investors that were not present in previous regulations. SOX will not be able to protect every consumer as scandals such as Enron occur not from lack of control but from corporate greed of executives willing to break the law to make profit, however SOX does make it much more difficult for those executives to do so.

References
Kimmel, P., Weygandt, J., & Kieso, D. (2011). Accounting: Tools for Business Decision Making» (4th ed.). Hoboken, NJ: Wiley & Sons, Inc.
Stephens, D. O. (2005). The Sarbanes-Oxley Act: Record management implications. Records Management Journal, 15(2), 98-103.
Tillman, B., & Fares, A. (2002). Who's afraid of Sarbanes-Oxley? Information Management Journal, 36(6), 16-21. Retrieved from http://search.proquest.com/docview/227765609?accountid=458
U.S. Securities and Exchange Commission. (2015). The Investor's Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation. Retrieved from http://www.sec.gov/about/whatwedo.shtml#create