Sarbanes-Oxley Act of 2002
Andrea Kelley
ACC/561
Professor Melinda Gregg
November 9, 2015

Introduction
A regulatory agency is a representation of a governmental body, which is produced by a legislature. Regulatory agencies are implemented to enforce laws of legislative functions, executive functions, and judicial functions. The regulatory agencies plays a central role in the operation of the financial sector. There are a numerous variances of regulatory agencies, which all serve a different purpose in business law enforcement. Some of which include the Environmental Protection Agency, Occupational Health and Safety Administration, and the Securities and Exchange Commission. For the purpose of this paper, a description of the Securities and Exchange Commission will be given. Further describing the regulations which will protect the public from fraud within corporations and what that represents in the Sarbanes-Oxley Act of 2002.
The Securities and Exchange Commission
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation (SEC.gov, 2013). The SEC is the regulatory agency which governs securities markets and protects investors. It is a regulatory agency which oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception (SearchFinancialSecurity.com, 2015). The SEC is composed of five commissioners, three of which may not belong to the same political party. The commissioners serve staggered terms of five years.
The Divisions of the SEC
The SEC consist of five major divisions. The Division of Corporation Finance ensures corporate disclosure of important information to the investing public (SearchFinancialSecurity.com, 2015). The Division of Trading and Markets governs a fair, orderly, and efficient markets. The Division of Investment Management provides protection to investors promoting capital formation through oversight and regulation of America's $26 trillion investment management industry (SEC.gov, 2013). The Division of Enforcement recommends the commencement to investigate securities law violations and initiates civil and criminal actions. The Division of Economic and Risk Analysis assists the Commission in executing its mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation by integrating robust economic analysis and rigorous data analytics into the work of the SEC (SEC.gov, 2013).
The Laws Which Govern Securities
Securities Act of 1933, also known as the truth in securities law, has two basic objectives: investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities (SEC.gov, 2013). The SEC Act of 1934 created the Securities and Exchange Commission, giving extensive authority over securities industry. Trust Indenture Act of 1939 applies to debt securities such as bonds, debentures, and notes that are offered for public sale (SEC.gov, 2013). The Investment Company Act of 1940 was established to regulate organizations of companies, to ensure minimal conflict of interest. The Investment Advisers Act of 1940 ensures that investment advisers register with the SEC and follow regulations designed to protect investors.
The Sarbanes-Oxley Act of 2002 mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession (SEC.gov, 2013). Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was established to reshape the regulatory system in areas such as: consumer protection, trading restrictions, credit ratings, etc. Jumpstart Our Business Startups (JOBS) Act states that the SEC must design rules and issue studies on capital formation, disclosure, and registration requirements (SEC.gov, 2013).
The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 was signed by President Bush on July 30, 2002. The Sarbanes-Oxley Act was enacted in response to a series of high-profile financial scandals that occurred in the early 2000s at companies including Enron, WorldCom and Tyco that rattled investor confidence (SearchCIO.com, 2015). It was intended to improve corporate governance and accountability.
The Act was derived of sixty-six sections, each section dealing with a different part of the reporting cycle. Each section consist of eleven titles dealing with internal control. The eleven titles of SOX are as follows: Public Company Accounting Oversight Board, auditor independence, corporate responsibility, enhanced financial disclosures, analyst conflicts of interest, commission resources and authority, studies and reports, corporate and criminal fraud accountability, white-collar crime penalty enhancements, corporate tax returns, corporate fraud and accountability (SOX, 2002). Each title consist of different areas of financial reporting. The section in which regulate fraud are the sections based on internal control.
Internal Control
Internal control was one of the major issues being addressed in the Act, however some rules were not introduced until almost a year after the publication. A vital necessity of SOX was to employ preventive majors to detect fraud. Sections 302 and 404 consists of internal controls.
Section 302, corporate responsibility for financial reports, is more of a practical application of the internal controls. This particular section requires the management of a company to (a) establish and maintain internal controls; (b) design internal controls to guarantee that material information which relates to the issuer and its subsidiaries is communicated to the officers with the entities; (c) evaluate the internal controls’ efficiency within ninety days prior to the report; (d) present their conclusions in the report concerning the effectiveness of the internal controls based on the evaluation (SOX, 2002). Section 404, or management assessment of internal controls, requires each annual report to contain a report on internal controls and their effectiveness within the company (SOX, 2002).
These sections required management of a business to compose and present analysis of the design and efficiency of the business’ internal controls. Internal controls do not however ensure that businesses will function in full preventive measures. However, Section 404 states that a report on internal controls must be filed with the SEC. This is to reveal any control deficiencies or weaknesses.
Fraud Prevention
In April 2003, an addition was published to section 301 of SOX, establishing that protection be provided to employees who would come forth to release information of fraud. Section 404 of SOX states that a business’s management and external auditors must testify on matters concerning the efficiency of their internal controls for financial reporting. For the fiscal year through August 20, 2003, the Commission has filed 543 enforcement actions, 147 of which involve financial fraud or reporting violations (SEC.gov, 2003).
Business which are seeking for ways to lessen the potential for fraud after being involved in fraud are bond to title XI of SOX. Title XI of the Sarbanes-Oxley Act, Corporate Fraud and Accountability, seeks to alleviate the longevity of the search (SOX, 2002). Laws are enforced to any entity or individual who engages in fraud. Individuals who may be reluctant to alter documents or official proceedings will be fined or placed in prison for a period up to twenty years. Title XI contains six applicable sections with penalties and regulations: tampering with a record or otherwise impeding an official proceeding (1102), temporary freeze authority for the SEC (1103), amendment to the federal sentencing guidelines (1104), authority of the commission to prohibit persons from serving as officers or directors (1105), increased criminal penalties under Securities Exchange Act of 1934 (1106), and retaliation against informants (1107) (SOX, 2002). Business which have not complied with these standards are no longer operational.
Conclusion
The Securities and Exchange Commission is the regulatory agency responsible for the protection of investors and maintain fair, orderly, and efficient markets. The SEC consists of five divisions all of which govern a different function of securities. The laws which govern securities begin with the Securities Act of 1933 and also includes The Sarbanes-Oxley Act of 2002. SOX was published after the fraud scandal of Enron in order to improve corporate governance and accountability in order to prevent fraud. The major preventive major in this case was internal controls. Sections 302 and 404 give requirements of internal controls and reporting methods. Sections 301 give requirements and regulations for matters of fraud and fraud prevention. The SEC has established an effective measure of fraud prevention and continues to enforce preventive fraud measures.

References
Sarbanes-Oxley Act of 2002. (2002, July 30). U.S. Securities and Exchange Commission
(Documents Page). Retrieved from: www.sec.gov/about/laws/soa2002.pdf Search Cio.com (2015). Sarbanes-Oxley Act (SOX) Definition. Retrieved from: http://searchcio.techtarget.com/definition/Sarbanes-Oxley-Act Search Financial Security.com (2015). Securities and Exchange Commission (SEC) Definition. Retrieved from: http://searchfinancialsecurity.techtarget.com/definition/Securities-and-Exchange
Commission
Securities and Exchange Commission.gov (2003). Testimony Concerning Implementation of the
Sarbanes-Oxley Act of 2002. Retrieved from: https://www.sec.gov/news/testimony/090903tswhd.htm The U.S. Securities and Exchange Commission (2013). 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