... The Cost and Benefits of Sarbanes-Oxley/ Forbes ARTICLE SYNOPSIS Sarbanes Oxley Act is “an act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations” (“Sarbanes Oxley Act,” 2015). In the review of “The Cost and Benefits of Sarbanes Oxley”, the article started out speaking on how the SOX Act 2002 was designed to protect investors, but many felt as if it was politically motivated. This Act will cause to lose risk takers and competiveness. In today’s business environment, the Sarbanes Oxley Act molded the ethical standpoint to numerous companies. The SOX Act 2002 was designed to keep companies honest. The criminal penalty for this law is a fine and/ or 25 years, but no more than 25 years. The stiff punishment minimized the fraudulent ideas from individuals and firms. The SOX Act 2002 increased the consumer confidence. “We only know that there were benefits in terms of financial reporting and corporate governance; that costs of implementation were higher for smaller companies; and that concerns about risk-taking and investment haven’t come to bear” (“The Cost and Benefit of Sarbanes and Oxley,” 2014, p. 1). This article also goes and talk about the cost and benefits of the Sarbanes Oxley Act 2002. SOX restrictions pushed several fraud-prone companies to go private. These was mainly the smaller companies that were fraud prone. I believe overall Sarbanes Oxley Act 2002 was good for the consumer...
Words: 405 - Pages: 2
...Adoption of the Sarbanes-Oxley Act of 2002 Accounting 100: Accounting I March 19, 2011 Strayer University Adoption of the Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002, commonly called the SOX, is a United States federal law that was passed in response to a number of major corporate and accounting scandals (veracode.com/solutions/sox-compliance.html, 2011). The act was passed to strengthen corporate governance and restore investor confidence. It was sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley. The act was passed in response to a number of major corporate and accounting scandals, the most popular being Enron, in the United States (audit-is.com/legislation/sox.htm, 2011). As a result of Enron’s scandal and public bankruptcy, congress passed the act which required all public companies that have business in the United States to have an accounting framework (Nelson & Stanley, 2011). The Sarbanes-Oxley Act made it mandatory for all public companies to contain internal financial auditing controls and to present the results in annual assessments. The results must be reported to the Securities and Exchange Commission (SEC) on an annual basis. Furthermore, the Sarbanes-Oxley Act of 2002 requires all public companies to have an external auditor. The external auditor will audit the company’s internal control reports of management and their financial statements (Baker, Bealing Jr, Nelson & Stanley, 2011). In this...
Words: 1171 - Pages: 5
...Sarbanes-Oxley Act of 2002 I. Introduction The Sarbanes–Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. 745, enacted July 30, 2002), also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act does not apply to privately held companies. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Harvey Pitt, the 26th chairman of the Securities and Exchange Commission (SEC), led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public...
Words: 2179 - Pages: 9
...The Impact of Sarbanes-Oxley Act of 2002 on Accounting and Finance Departments Danika Grace Brown Lakeland College Kellett School of Business – BlendEd BA 772 Advanced Industrial Accounting II Instructor Mary Diederich March 10, 2015 Table of Contents Abstract 2 Overview of the Sarbanes-Oxley Act of 2002 3 About SOX 4 Reporting and Compliance 5 Risk Assessment and Control 6 Interview at Company X 7 Standards for Corporations and Officers 8 Auditing and Financial Reporting 9 Future Impact of SOX 10 Conclusion 11 References 13 Abstract Sarbanes-Oxley is the response from Congress in regards to the financial industry collapse that happened over a decade ago. Due to unethical reporting from corporations, Sarbanes-Oxley (SOX) is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. As a result of SOX, top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Furthermore, SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements. This paper will look to provide an oversight of the law and how it pertains to the standards in Accounting and Finance departments nowadays. In addition, this paper will also touch on the ongoing costs and benefits of the now standard...
Words: 3586 - Pages: 15
...“President George W. Bush signed the Sarbanes-Oxley Act ( SOX) of 2002 (Public Law 107-204) on Tuesday, July 30, 2002. Congress presented the act to the president on July 26, 2002, after passage in the Senate by a 99-0 vote and in the House by a 423-3 margin” (The sarbanes-oxley act). A new federal law was passed in reaction to corporate scandals such as the Enron, WorldCom, Tyco cases. The Sarbanes-Oxley Act puts extreme pressure on companies accounting practices and annual reports. Simply put, the act was created to protect investors from corporate corruption, and accounting misconduct. This act also created a new agency called the Public Company Accounting Oversight Board, or PCAOB. The main purpose of Sarbanes Oxley Act is to ensure that the corporate sector works with transparency and provides full disclosure of information as and when required. The transparency purpose of Sarbanes Oxley Act is fulfilled by ensuring real time disclosure of information, the adherence to guidelines of the Generally Accepted Accounting practices, full financial details being made available of all the transactions not mentioned in balance sheet. This purpose of Sarbanes Oxley Act is also fulfilled by an expanded disclosure of financial and non financial control measures in force in every company. Similarly, public certification of these internal controls and financial measures also helps fulfilled the purpose of Sarbanes Oxley Act (Bing). The objective of Sarbanes Oxley Act is to make company audit committees...
Words: 1587 - Pages: 7
...Whistleblowing and Sarbanes-Oxley Act Student Name College or University Name LEG500 – Law, Ethics, and Corporate Governance Professor’s Title Date Whistleblowing and Sarbanes-Oxley The federal government passed and put into law the Sarbanes-Oxley Act of 2002 (SOX) to primarily protect whistleblowers from retaliation for reporting corporate fraud and financial malfeasance to the government. The negligence became apparent in the 1990’s when corporations such as Enron, HealthSouth, Tyco and WorldCom were found to have grossly overstated their earnings. This cost billions of dollars in losses to shareholders and caused the near-collapse of the stock market (Prentice, 2010, p. 17). The companies were able to hide, scam or misrepresent their earnings due to the dot-com boom, soaring investments, and auditor fraud. The Sarbanes-Oxley Act contains many sections, sub-sections and creation of other agencies to enforce it. It was a sweeping change to standard reporting practices and was created to restore investor confidence, hold corporations and auditors financially and criminally accountable, and protect whistleblowers. Prior to the creation of SOX the whistleblower had no protection from retaliation by the organization. Whistleblowers had fears of criminal prosecution, bodily harm and job loss if they reported the misdeeds of their employer both publicly and privately. The Sarbanes-Oxley Act of 2002 redefined the whistleblower. An examination of the characteristics of a whistleblower...
Words: 1159 - Pages: 5
...MGT7019 | Dr. Jennifer Scott | | | Ethics in Business | Case Study: A primer on Sarbanes- Oxley | <Add Learner comments here> ------------------------------------------------- ------------------------------------------------- Faculty Use Only ------------------------------------------------- <Faculty comments here> ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- <Faculty Name> <Grade Earned> <Writing Score> <Date Graded> Case Study: A primer on Sarbanes-Oxley Leona M. Anderson Dr. Jennifer Scott Northcentral University A Primer on Sarbanes-Oxley Introduction The problem to be investigated is whether Sarbanes-Oxley has helped to improve public trust in the markets and reduce non-ethical practices in business. The Sarbanes-Oxley Act of 2002 (SOX) was passed by the 107th Congress on July 30, 2002 (Sarbanes-Oxley, 2002) to provide protection to investors and shareholders as a result of fraudulent activities by some U.S. Corporations such as Enron, Tyco, WorldCom, and Adelphia, as well as other public companies (Jennings, 2012; Scott & Nganje, 2011). SOX introduced major regulatory changes which affect financial practice and corporate governance; and compliance is mandatory for ALL organizations (Guide to Sarbanes-Oxley, 2006). SOX is actually Public Law 107-204 and it is divided into eleven different...
Words: 2048 - Pages: 9
...What exactly is the Sarbanes-Oxley Act? Who does it protect? Who benefits from SOX most? I will discuss what the Sarbanes-Oxley Act (SOX) is its key components, and its primary objective. Also, I will discuss the criticisms surrounding the SOX act. Why it is important to enforce the Sarbanes-Oxley Act. Finally, I will discuss if the SOX has achieved its goals. The main purpose of Sarbanes Oxley Act is to ensure that the corporate sector works with transparency and provides full disclosure of information as and when required (Bing, 2007). This basically means that corporations must keep good records of what goes on in their business, not just for their benefit, but just in case of an audit, then they’ll have all their transactions ready to be reviewed and to keep future corporate scandals down. The Sarbanes-Oxley Act was passed by Congress on July 30, 2002. The law forced public companies to spend much more money having their books thoroughly audited, and it increased the penalties for executives who defrauded investors. Since the bill's passage and implementation, nervous investors who had yanked trillions of dollars from the market have returned (Farrell, 2007). The men behind the Sarbanes-Oxley Act consist of U.S. Treasury Secretary Henry Paulson, New York Stock Exchange CEO John Thain and former AIG chief Maurice "Hank" Greenberg. Even though their voices my appear to be isolated, Charles Niemeier a member of the Public Company Accounting Oversight Board...
Words: 2320 - Pages: 10
...The Ineffectiveness of the Sarbanes Oxley Act In Corporate Management and Accounting In the early 1990s, a young company named Enron was quickly moving up Fortune magazine’s chart of “America’s Most Innovative Company.” As the corporate world began to herald Enron as the next global leader in business, a dark secret loomed on the horizon of this great energy company. Aggressive entrepreneurs eager to push the company’s stock price higher and a series of fraudulent accounting procedures involving special purpose entities were about to be exposed. In early 2002, the United States Justice Department announced its intent to pursue a criminal investigation into the once mighty company, Enron. After the gross negligence of accounting procedures were discovered at Enron, Congress passed the Sarbanes Oxley Act of 2002. While this legislation was seen by many as the rules to keep large corporations from destroying investors and employees, it also created unnecessary confusion and unbearable costs for American businesses. Perhaps one of the most confusing pieces of the Sarbanes Oxley Act is §404, regarding “the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.” (Sarbanes Oxley Act of 2002) While this sounds like good legislation, the cost of compliance with §404 varies greatly among public companies, depending on the size of their business. Joseph Piche, founder and CEO of Eikos, Inc., testified...
Words: 690 - Pages: 3
...A Primer on Sarbanes-Oxley The Sarbanes-Oxley Act was declared a law in 2002 (Orin, 2008). The primary purpose of this new law was to convey meaning to restoring faith in corporate America’s financial endeavors (Orin, 2008). The Sarbanes-Oxley Act was meant to aid and protect investors, who suffered extreme losses because of corporations having poor financial performances, which was the case before the law was enacted (Orin, 2008). Distinctively, the Sarbanes-Oxley Act was meant to concentrate on accounting fraudulence by holding corporations accountable for disclosing accurate and reliable financial records. The Sarbanes-Oxley Act was also meant to ensure corporate executive leadership acted ethically throughout daily business (Orin, 2008). Assess the Effectiveness of SOX Legislations Key Ethical Components of the SOX To efficiently and effectively implement the Sarbanes-Oxley Act corporations need to broaden their views and focus on the greater purpose of the Sarbanes-Oxley Act. Beasley and Hermanson (2009) believe to accomplish this corporate leadership need to focus on the following: • Value the purpose of the Sarbanes-Oxley Act. • Comprehend the effect of fraudulence behavior. • Concentrate on ethical attitudes pertaining to rationalizing fraudulence behavior. • Making the Sarbanes Oxley Act the foundation to compliance to improve governance and control. • Investigate and implement enterprise risk management (para 5). Value...
Words: 1952 - Pages: 8
...What exactly is the Sarbanes-Oxley Act? Who does it protect? Who benefits from SOX most? I will discuss what the Sarbanes-Oxley Act (SOX) is its key components, and its primary objective. Also, I will discuss the criticisms surrounding the SOX act. Why it is important to enforce the Sarbanes-Oxley Act. Finally, I will discuss if the SOX has achieved its goals. The main purpose of Sarbanes Oxley Act is to ensure that the corporate sector works with transparency and provides full disclosure of information as and when required (Bing, 2007). This basically means that corporations must keep good records of what goes on in their business, not just for their benefit, but just in case of an audit, then they’ll have all their transactions ready to be reviewed and to keep future corporate scandals down. The Sarbanes-Oxley Act was passed by Congress on July 30, 2002. The law forced public companies to spend much more money having their books thoroughly audited, and it increased the penalties for executives who defrauded investors. Since the bill's passage and implementation, nervous investors who had yanked trillions of dollars from the market have returned (Farrell, 2007). The men behind the Sarbanes-Oxley Act consist of U.S. Treasury Secretary Henry Paulson, New York Stock Exchange CEO John Thain and former AIG chief Maurice "Hank" Greenberg. Even though their voices my appear to be isolated, Charles Niemeier a member of the Public Company Accounting Oversight Board...
Words: 2320 - Pages: 10
...the Enron and WorldCom, Congress enacted the Sarbanes-Oxley Act of 2002. The Act is considered by many to be the most important legislation affecting the auditing profession since the 1933 and 1934 Securities Acts (Arens, 2010). The Act also established the Public Company Accounting Oversight Board (PCAOB). The PCAOB provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits, and performs inspections of the quality controls at audit firms performing those audits (Arens, 2010). But the question is, are these regulations effective against corporate fraud and protecting investors? It is my opinion that the most important sections of the Sarbanes-Oxley Act are sections 302, 404, and 802. Section 302 holds a company’s CEO and CFO accountable for their financial reports. They must sign off on the financial reports stating that they have reviewed the report and that the report does not contain any untrue information or omissions. I firmly believe that this section is effective, CEOs and CFOs can no longer “turn a blind eye” or use the excuse that they didn’t know what was going on in their company. Section 404 pertains to the assessment of a company’s internal controls. The auditing firm of a public company must attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting (Sarbanes-Oxley Act 2002). Section 404 also requires management to identify...
Words: 1264 - Pages: 6
...Patrick Chamberlain Dr. Wokukwu Intermediate Accounting October 13, 2011 Corporate Responsibility of Sarbanes Oxley Act of 2002 To first understand the corporate responsibilities of the Sarbanes Oxley Act of 2002, otherwise referred to as SOX; you first need to understand that the Act was created for. The SOX came into effect in July 2002 and it was introduced for major changes to the regulation of corporate governance and financial practice. The act was also known as the ‘Public Company Accounting Reform and investor Protection Act of 2002’ in the senate and was called ‘Corporate and Auditing Accountability and Responsibility Act’ in the house. SOX set new and enhanced standards for all united stated public company boards, management, and public accounting firms. It is named after its sponsors which are Senator Paul Sarbanes ad United States Representative Michael G. Oxley. [6] The bill was enacted as a reaction to a number of major corporate and accounting scandals. The scandals cost the investors billions of dollars because the share prices of affected companies collapsed, shook public confidence in the nation’s securities markets. These scandals do not apply to privately held companies. [6] The SOX act contains 11 titles and sections that range from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission to implement the rulings on the requirements to comply with the law. [6] The 26th chairman...
Words: 4874 - Pages: 20
...The Sarbanes-Oxley Act of 2002 Abstract This paper addresses financial analysis standards legislated in the Sarbanes-Oxley Act of 2002 (SOX). The focus will be on how the legislation enhanced the role of auditing and auditing firms, the impact of whistleblower legislation, and the recent Supreme Court decision. The paper attempts to show that though there continues to be opposition to SOX’s financial reform legislation, there is a case to be made in support of SOX. The research relies on historical data, such as the Enron scandal, and the recent decision by the United States Supreme Court decision that deems SOX as constitutional, to support that legislation is a necessary requirement in today’s global corporate environment, in which some of the largest corporations have proven that, left to their own devices, they will gravitate toward corporate malfeasance. The Sarbanes-Oxley Act of 2002: WorldCom. Enron. Adelphia. Global Crossing. What do all these companies have in common? They will always be synonymous with the following: financial fraud, corporate malfeasance, internal corruption, and the reason behind the passage of the Sarbanes-Oxley Act of 2002 (SOX). Not since the Crash of 1929 and the subsequent passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 (Bumgardner, 2003, para. 2), had the country seen such a push for financial reform. Triggered by investigations into corporate fraud by some of the largest and most successful corporations...
Words: 3735 - Pages: 15
...CLASS PROJECT GM 520: BUSINESS REGULATIONS: SARBANES-OXLEY August 14, 2006 Need a Sarbanes Oxley Compliance Plan? The Sarbanes-Oxley Act of 2002, sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley, represents the biggest change to federal securities laws in decades. Effective in 2006, all publicly-traded companies are required to submit an annual report of the effectiveness of their internal accounting controls to the SEC. It came as a result of the large corporate financial scandals involving Enron, WorldCom, Global Crossing and Arthur Andersen. Provisions of the Sarbanes Oxley Act (SOX) detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. It affects public U.S. companies and non-U.S. companies with a U.S. presence. SOX is all about corporate governance and financial disclosure. High-profile business failures culminating in a media fixation on Enron called into question the effectiveness of business’ self-regulatory process as well as the effectiveness of the audit to uphold public trust in capital markets. Legislation to address shortcomings in financial reporting was slowly progressing in Congress. The sudden collapse of WorldCom guaranteed swift congressional action. President Bush signed the Sarbanes-Oxley Act in to Law on July 22, 2002. The most significant legislation affecting the accounting profession since 1933. Developing...
Words: 1870 - Pages: 8
