...The Sarbanes-Oxley Act of 2002 and Its Effect on the Accounting Profession Robin M. Holdgate BA-507 Advanced Business Law and Ethics Upper Iowa University Richard Healy, A.B., J.D. October 14, 2012 Abstract Sarbanes-Oxley Act of 2002 was hailed as “the most far-reaching reforms since the time of Franklin D. Roosevelt” by President George W. Bush when he signed it into law. 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 law. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco, WorldCom and Arthur Andersen LLP. These scandals cost investors billions of dollars when the share prices of affected companies collapsed and shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act of 2002 and Its Effect on the Accounting Profession Enron, World Com and Arthur Andersen LLP, three names that have long become synonymous with deceptive accounting practices and lack of transparency, were but a few of the catalysts to the hastily enactment of the Sarbanes-Oxley Act of 2002. More commonly known as SOX, it was enacted on July 29, 2002 and signed into...
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...The Effects of the Sarbanes-Oxley Act There have been widespread reactions to corporate scandals which have become seemingly common in corporate America. Government reaction to these unethical corporate and accounting scandals has led to regulation and intervention. The Sarbanes-Oxley Act of 2002 is seen as a response to the lack of corporate governance present in many corporations. The Sarbanes-Oxley Act of 2002 is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called Sarbanes-Oxley, Sarbox, or SOX. This United States federal law was enacted on July 30, 2002 in response to a number of major corporate and accounting scandals, including those affecting Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. The act is administered by the Securities and Exchange Commission. It sets deadlines for compliance and publishes rules on requirements. The Act contains 11 titles; these describe specific mandates and requirements for financial reporting. Moreover, the Sarbanes-Oxley Act introduced major changes to the regulation of financial practice and corporate governance. It is seen as the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s” (Li, 1). It is extremely essential in to ensure protect to shareholders and the general public from accounting errors and fraudulent practices in an enterprise. However, with government regulation and intervention one must...
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...The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 The Act & Impact ACC 410, Jackie Lewis, Ph.D. Abstract The Sarbanes-Oxley Act, officially named the “Public Company Accounting Reform and Investor Protection Act of 2002”, is recognized to be the most noteworthy U.S. federal disclosure and corporate governance legislation since the Securities Act of1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act). Furthermore, the provisions of the Act are momentous enough that it is considered by many to be the most significant change to the federal securities laws in the U.S. since the New Deal. The Sarbanes-Oxley Act of 2002 The Act & Impact The Sarbanes-Oxley Act of 2002 was signed into law following the wake of corporate financial scandals. Many large companies such as Enron, WorldCom, and Arthur Anderson were affected. The Act provides a solid set of government rules that are aimed to discourage and punish corporate and accounting fraud, as well as corruption. SOX is designed to carry out these tasks by imposing severe penalties for wrong doings, while protecting the interest of workers and shareholders. The stated purposed to protect investors is maintained by improving the accuracy and reliability of corporate disclosures, imposing strict rules for audits and auditors of publically traded companies, preventing insider trading and deals, requiring companies to adopt strict internal controls, and increasing the penalties...
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...Effect of Unethical Behavior Christina Canfield August 4, 2013 ACC/291 Vanessa J. McCall Effects of Unethical Behavior In 2002 the congress passed the Sarbanes-Oxley Act. The first thing is to understand what the Sarbanes-Oxley Act is and what it does. This paper will also view one article about the Sarbanes-Oxley Act. To see how the Sarbanes-Oxley Act effect companies this paper will discuss the environment of firms before the act was passed. The question this paper will address it how the Sarbanes-Oxley Act affects auditing firms. The Sarbanes-Oxley Act was created to keep accountants firms and businesses honest with accounting documents. According to Jelinek, K., & Jelinek, R. (2010) article there are six specific sections within the Sarbanes-Oxley Act that effect just the client’s role as a buyer and the audit firm’s role as a seller. The six specific sections are 201: Prohibited Auditor Activities, 203: Audit Partner Rotation, 204: Auditor Reports to Audit Committees, 206: Conflicts of Interest, 301 Public Company Audit Committees, and 407 Disclosure of Audit Committee Financial Expert. Each of these affects the auditor’s relationship with the company they are auditing and the other way around. Before the Sarbanes-Oxley act the accounting firm’s environment was configured to the firm’s perspectives on how best to approach the auditor-client exchange. The audit firms were also sale-oriented. Because the audit firms were sales-oriented the firms would reject...
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...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...
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...Running Head: Effects Of Sarbanes-Oxley Act SOX The Effects of Sarbanes-Oxley Act SOX Kyle Bedgood Strayer University Abstract This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment. It also addresses the current criticism of the exportation of U.S. corporate governance norms under the Sarbanes-Oxley Act, focusing on the application of the audit committee requirement to foreign issuers from European countries with codetermination laws, and the prevention of loans to executives with respect to German issuers. In reply to such criticism, the Securities and Exchange Commission (SEC) has already granted foreign issuers several limited exemptions from the Act, as well as an exemption dealing with the audit committee independence requirement, motivated by the desire to retract foreign companies that canceled listings in the U.S. in response to the Act. This paper provides additional legal and economic justifications favoring the exclusion of foreign companies from the audit committee and loan prohibition requirements. Corporate greed and corruption has altered the face...
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...Effects of Unethical Behavior Article Analysis Effects of Unethical Behavior Article Analysis Sarbanes Oxley Act was established in 2002, mandating organizations large or small to follow. “The Sarbanes Oxley Act has introduced major changes to the regulation of financial practice and corporate governance” (Sarbanes-Oxley Essential Information, 2012). The act has also changed the way financial statements have to be reported. In a Post Sarbanes Oxley Era companies need to adapt to become more relational to stay successful. The Sarbanes Oxley Act has changed the reporting of financial statements by making organizations include an internal control report. The reason for this report is for the purpose of “showing that not only the company’s financial data is accurate, but that the company has confidence in them because adequate controls are in place to safeguard financial data” (Sarbanes-Oxley Essential Information, 2012). Also at the year-end financial reports need to have an assessment of how effective the internal controls are in which the issuer’s auditing firm attest to the assessment. This happens after the auditing firm reviews the “controls, policies, and procedures during a Section 40/40 audit, which is conducted with a traditional financial audit” (Sarbanes-Oxley Essential Information, 2012). For firms to become more relational in a Post Sarbanes Oxley Era, they need to redefine the roles of each audit professional and retrain their employees to incorporate...
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...financial accounting Sarbanes and Oxley or SOX is one of the most important pieces of legislation passed in this decade or even in the history of financial accounting. Sarbanes and Oxley brought about major changes in financial accounting which allows for more regulation of the accounting profession. It took Accounting form being looked at as a numbers game and placed more importance on the communication aspect of the profession. This essay will focus on Sarbanes and Oxley and its impact on the accounting profession as a whole. How can one piece of legislation weigh so heavily on a profession? To answer that question one has to look at the impact Sarbanes and Oxley has had on the practice of public accounting. Prior to Sarbanes and Oxley the regulation of public accounting was done internally, through organizations such as the SEC. However with the passage of Sarbanes and Oxley the profession was given an overhaul making companies more accountable. Sarbanes-Oxley was established to improve the quality and transparency of the financial statements issued by public companies. With that purpose in mind Sarbanes-Oxley developed a new board to oversee how financial statements are audited according to independent standards, the Public Company Accounting Oversight Board. This changed the game. It decreased the chance of companies falsifying financial statements, mainly because of the threat of penalties and imprisonment. In addition Sarbanes and Oxley have had a cascade effect on other accounting...
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...Sarbanes Oxley Act Joslin Cuthbertson Hampton University Abstract The Sarbanes-Oxley Act came into effect in July 2002 and introduced major changes to the guidelines of corporate authority and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main originators. The Sarbanes Oxley Act set a number of non-negotiable deadlines for publically traded companies to comply to. The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important section within these eleven titles is usually considered to be Section 404, which deals with internal controls. Since 2002, there has been a lot of debate about whether the act has positively or negatively affected corporate America. In this paper I have discussed the opinions of both sides of the argument. The Sarbanes-Oxley Act is a bill passed by Congress in 2002 after several corporations took actions that caused their companies to fail. These companies include Enron and WorldCom. As a result of these actions, stockholders lost confidence in the financial system. The intent of the bill is to protect investors of corporations by making the corporations accountable for any unacceptable accounting errors and practices. The Act is named after its main proponents, Senator Paul Sarbanes and Representative Michael Oxley. The Acts real name is the Public...
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...Sarbanes-Oxley Act (SOX) of 2002 Topics Covered: How SOX affects the following: CEO’s and CFO’s of Public Companies Outside Independent Audit Firms SOX section 404 on Internal Control The Main Advantages and Disadvantages of SOX Executive Summary The Sarbanes-Oxley Act of 2002 (SOX) was intended to create more transparency in financial reporting and to combat the perceived inflation of CEO compensation. To do this, the act required that a board of directors be financially independent from the CEO and have no familial ties. It also required the CEO and CFO to personally sign all quarterly and annual reports submitted to the SEC and provided for criminal penalties if this was not done. Our research indicates that Sarbanes-Oxley has created more transparency in the system, but it has actually had the opposite effect than was intended with regards to CEO compensation. The research indicates that CEO compensation has increased for many companies post-Sarbanes-Oxley. Due in large part to the Enron scandal, SOX needed to address outside independent audit firms to improve the accuracy of financial reports disclosed by publicly traded companies. These financial reports are used by investors, bankers and interested consumers to determine how well an organization is doing and provide investors with vital information about a company’s performance. This paper will discuss the Sarbanes-Oxley Act and how the SOX law affects outside independent audit firms. Next we review...
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...The Sarbanes-Oxley Act of 2002 Presented by: Ibrahim M. Conteh; Ruby Proctor Garcia; Kathleen M. Parry; Joseph M. Schmerling; Jaime Ulloa Auditing Theory and Practice 0902 ACCT422 4021 Due: April 29, 2009 Table of Contents Page Number What is the Sarbanes-Oxley Act of 2002? 3 Why was SOX established? 4 When did SOX take effect? 5 What companies were affected and how? 6 What does SOX compliance require? 9 Conclusion 11 References 13 What is the Sarbanes-Oxley Act of 2002? The Sarbanes-Oxley Act of 2002 – its official name being “Public Company Accounting Reform and Investor Protection Act of 2002” – is recognized to be the most significant U.S. federal disclosure and corporate governance legislation since the Securities Act of 1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act), and, the provisions of the Act are significant enough that it is considered by many to be the most significant change to federal securities laws in the U.S. since the New Deal. It is best understood, however, not as a piece of legislation centered on a new concept of regulation, but as a process which mandated that many major reforms be implemented as soon as possible (in some cases, within 30 days) on the precise schedule specified by Congress. In that sense, the Enron and WorldCom debacles provided the impetus of public outrage that...
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...CRN # Group Research Project Sarbanes Oxley David, Eric, Jeff We have decided to analyze and research the managerial accounting theory of the Sarbanes Oxley Act. In this project we will describe how this act became in existence, the implementation of this act into major corporations, the organization problem that the act was developed to address, the specific pros and cons of this act, how companies have adjusted accounting process because of this act, and our position on the act. In analyzing and researching these different topics we will better understand the complexity and the specific foundations of the Sarbanes Oxley Act. As stated above we will first look at how the Sarbanes Oxley Act became in existence. The Sarbanes Oxley Act was passed into legislation in 2002 because of a series of corporate scandals. Some regard the Sarbanes Oxley Act as the most significant modification of securities regulation since the 1930’s. However, in the 1990’s, there were a number of amendments that significantly enlarged the regulatory powers of the Securities Exchange Commission. These acts were significant that led up to the implementation of the Sarbanes Oxley Act of 2002. These regulations include the Penny Stock Reform Act of 1990, the Securities Acts Amendments of 1990, the Market Reform Act of 1990, and the National Securities Markets Improvement Act of 1996. All of these acts have helped shape and form the original Sarbanes Oxley Act of 2002. For years since the original...
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...The power of section 404 of the Sarbanes -Oxley Act on earning quality Law/431 July 23, 2012 The power of section 404 of the Sarbanes -Oxley Act on earning quality In this article, the authors study the effect of Section 404 of the Sarbanes-Oxley Act on two primary characteristics of earnings quality, reliability and relevance in combination. Using a difference-in-differences method, they find that firms that were required to comply with Section 404 during the first 2 years of its implementation improved the reliability of their reported earnings more than control firms that were not required to comply . More than seven years after the enactment of the Sarbanes-Oxley Act of 2002 (SOX hereafter), the effectiveness of the regulation remains controversial, with the recent financial crisis fueling this debate further (Altamura & Beatty, 2010). In this article, we study the effect of the internal control requirements of Section 404 of the Sarbanes-Oxley Act(Section 404 hereafter) on the earnings quality of all complying firms. We are motivated to study this issue because Section 404 is one of the most visible and tangible changes brought by SOX,1 the most far-reaching reform in the financial reporting and corporate governance requirements for public companies since the 1930s dimensions. For example, Section 404 mandates the disclosure of internal control-related problems, whereas FDICIA does not. Such differences may lead to different effectiveness of the two regulations...
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...Section 404 of the Sarbanes-Oxley Act: Curse or Blessing for Financial Reporting? Yuliya M. Ford University of Maryland University College Introduction In response to public concerns regarding the accuracy and quality of reported financial information by publicly traded companies, in mid-summer of 2002 Congress passed Public Law 107-204, 116 Stat.745 which is commonly referred to as the Sarbanes Oxley Act (SOX or the Act). The law was passed in large part due to the public outcry of the numerous unethical accounting scandals and fraudulent reports from such notable companies as - Enron, WorldCom, and Global Crossing (Singer and You, 2011). The goal of SOX was to mandate corporate governance reforms in order to help to instill investor’s confidence in capital markets. In an effort to establish best practices and standards SOX created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is chartered with the establishment of independent standards and overseeing the compliance of publicly traded companies with these standards (Agami, 2006). Another very important aspect that the PCAOB is charged with is reviewing the samples of audits conducted by accounting firms and ensuring that both the spirit and letter of the SOX act was established under (Parles, O’Sullivan, & Shannon, 2007). The Sarbanes-Oxley Act is divided into eleven sections referred to as titles. In terms of compliance, many have posited, including Addison-Hewitt Associates (2003), that the most...
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...Sarbanes Oxley: An Antidote To Executive Greed? | May2011 | “Today I sign the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt. This new law sends very clear messages that all concerned must heed. This law says to every dishonest corporate leader: you will be exposed and punished; the era of low standards and false profits is over; no boardroom in America is above or beyond the law”- George W. Bush | | INTRODUCTION Since the initial separation of corporate ownership from corporate management, the abuse of power by management has been a concern. Early in the last century a small number of Industrialists owned and controlled the major corporations. Slowly, as these individuals aged and retired, their vast holdings were transferred to a large number of decedents who were, for the most part, disinterested in managing the firms in which they held an ownership share. The shareholders relied on experienced managers to direct their corporations. This transfer of power gave rise to agency problems wherein the agent of the organization (manager) is likely to place their own interest above those of the actual owners of the firm. There is a vast body of literature addressing the issues of agency problems and clearly defined Agency Theory to which the majority of scholars subscribe (Van Ness, Miesing, and Kang, 2009) The original attempt to create an antidote to agency problems was the formation of corporate boards of directors...
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