...Article Review: Sarbanes-Oxley Act of 2002 It is unfortunate that many increasing standards come after a failure in the system. The Sarbanes-Oxley Act of 2002 is a primary example. The public scandals of Enron, Tyco and WorldCom were quickly followed with this act. It brought great change throughout the world of business. The Act was enacted in July of 2002 and co-authored by U.S. Sen. Paul Sarbanes of Maryland and U.S. Rep. Michael Oxley of Ohio. The Sarbanes-Oxley Act gave more confidence in investors and creditors when it comes to fraud by reforming reporting standards. Although the market took a huge hit after the collapse of several major companies between 200-2004, the Sarbanes-Oxley began to rebuild the market and the ethical standards within it. The Sarbanes-Oxley brought about many other aspects besides the act itself. In turn, the Public Company Accounting Oversight Board was created, assessment of liability with auditors was enacted, new internal control procedures, and more liability for all involved. The oversight Board is responsible for monitoring public accounting companies and performs regular audits. Sarbanes-Oxley intended for two main things with the market; to boost the confidence of investors in a previously broken market, and to decrease fraud. Along with positives, the Sarbanes-Oxley Act brought on some negative aspects as well. Some public companies required to comply with Sarbanes-Oxley are subject to additional costs directly assigned...
Words: 433 - Pages: 2
...The Impact of the Sarbanes-Oxley Act on Corporate America In discussing the impact of one of the most important laws passed in Congress to legislate the accounting and reporting rules of corporations, I need to give a brief definition and some background information for the Sarbanes-Oxley Act. In 2002, the Sarbanes-Oxley Act was passed into law by the United States Congress. After a series of high profile corporate scandals, such as Enron and WorldCom, the Congress of the United States passed this legislation “to improve and maintain investor confidence. The law requires companies to have more independent board directors (not just company insiders), to adhere strictly to accounting rules, and to have senior managers personally sign off on financial results.” (Bateman, 173). Before the fall of corporations like Enron and WorldCom, there was also far too much corporate fraud during the Internet bubble. According to Stanley Block and his co-authors, “The major accounting firms had failed to detect fraud in their accounting audits, and outside directors were often not provided with the kind of information that would allow them to detect fraud and mismanagement.” (Block, 12). What is the definition, in a nutshell, of the Sabarnes-Oxley Act? This is something that needs to be defined and understood before examining the positive and negative impacts of this law upon corporate America. The Sarbanes-Oxley Act “establishes strict accounting and reporting rules in order to make senior...
Words: 1961 - Pages: 8
...The Sarbanes-Oxley Act, passed in 2002, is aimed primarily at public accounting firms who participate in audits of corporations. It was passed in response to a number of corporate accounting scandals that occurred between 2000-2002 (Peavler, n.d). This act set new standards for public accounting firms, corporate management, and corporate boards of directors. Sarbanes-Oxley, or SOX, is a federal law that is the most comprehensive reform of business practices since Franklin D. Roosevelt was President of the U.S. and passed the New Deal. What caused the need for the Sarbanes-Oxley Legislation? The Enron scandal was certainly enough to show the American public and its representatives in Congress that new compliance standards for public accounting and auditing had to be put into place. Enron was one of the biggest and, it was thought, one of the most financially sound companies in the U.S. Enron was perhaps the catalyst for the Sarbanes-Oxley legislation. Enron stands for the greatest company scandal in the history of the US economy and has become a symbol of corruption for the whole Western economic system. In 2001, the nation was rocked by the collapse of Enron, a multibillion dollar corporation that employed thousands of people and had affiliations right up to and including The White House itself. Amid the financial chaos and destroyed lives and reputations the collapse left in its wake, questions arose concerning exactly how the catastrophe occurred, why it occurred, and who...
Words: 902 - Pages: 4
...theorld of 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...
Words: 603 - Pages: 3
...Abstract The Sarbanes Oxley Act (SOX) has become one of the most important legislative passages since 2002 that has affected the accounting industry. The purpose of this paper is to explore the business practices on Native American Indian reservations and incorporating the Sarbanes Oxley Act (SOX) in to their business administrative policies and procedure plans. The results of this report will provide an initial starting point for chief executive officers and business entreputers on reservations to better understand the importance to incorporate this legislative act so ethical practices can begin to have changes in the business environments. It will further explain that due to the high degree of influence, professionals should follow a strict code of ethics, and I will review the code of ethics established by the Institute of Managerial Accounting. I will use observations, articles, and peer reviewed sources. There is a need for fiduciary educational change that is necessary with respect to how individual employees conduct their business practices that operate on the Indian reservations throughout Indian country. Various Indian organizations operating have experienced an increase of unethical business practices. This changes deals with meeting the challenge of addressing current events and new regulations that need to be established on reservations. In 2010, a report by Sue Woodrow entitled, “Ethics as a building block of economic growth: Global insights...
Words: 2290 - Pages: 10
...of 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...
Words: 1264 - Pages: 6
...Sarbanes Oxley Act Article Review Amber Means LAW 421 November 24, 2014 Jane Schneider Sarbanes Oxley Act Article Review Corporate fraud and mismanagement scandals in publically held companies, along with the public outcry for stricter regulations and accountability in early 2000 led to the passing of the Sarbanes-Oxley Act (SOX Act) of 2002. The primary purpose of the SOX Act is to overhaul the structure of corporate governance regulatory structure and impose stricter regulation and controls on the auditing, financial reporting and internal corporate governance procedures of corporations (Melvin, 2011). Significant portions of the Act are aimed towards creating solutions for specific failures in the auditing and accounting procedures of publically held companies. The Act also increased the jurisdiction, enforcement alternatives and enforcement budget of the U.S. Securities and Exchange Commission (SEC) substantially (Melvin, 2011). The SOX Act of 2002 was implemented to effectively end corruption within publically held companies and restore the faith of investors in the corporate system, but how well is it working? The following is summary of the article “Sarbanes-Oxley Act 2002 (SOX) – 10 years later” which discusses the intentions of the SOX Act, the corruption and legislative environment which led to its implementation, and how its implementation has affected corporations and investors. History of legislation Prior to the Sarbanes-Oxley Act 2002, the Securities...
Words: 1144 - Pages: 5
...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
...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 regulations...
Words: 3586 - Pages: 15
...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
...“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
...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...
Words: 3869 - Pages: 16
...Sarbanes- Oxley Act Impact of Law Max McKay Business Law & Ethics Professor DeLange May 17, 2007 Impact of Sarbanes-Oxley Act Not only were billions of dollars lost in corporate accounting scandals involving Enron and Worldcom, thousands of jobs on top of an immeasurable amount of credibility was also lost in the process. As most everyone knows by now, or should know, 2002 became a turning point in the world of business. Publicly traded companies such as Enron and Worldcom were caught by the SEC misrepresenting financial statements, quickly leading to steep downward spiral in stock prices of publicly traded firms throughout the market. Once considered to be one of the top five accounting firms, Anderson was fined $500,000 and given five years of probation following the Enron scandal. The firm initially lost over 1,000 employees and is no longer audits corporations (CBCNews, 2002). As a result of these scandals, investors lost millions of dollars as the marketplace took a big hit that day nearly five years ago. On June 25, 2002, it was announced that Worldcom was a part of the largest corporate fraud case in American history at the time, with numbers reaching up to $3.8 billion (Snee, 2007). Mr. Snee goes on to say that stocks sunk to new lows on news of the fraud, as investor’s increasingly lost faith in companies’ earnings statements. As a result of such fraudulent activities associated with Worldcom and Enron, President George Bush signed the Sarbanes-Oxley...
Words: 1591 - Pages: 7
...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 of American business...
Words: 1578 - Pages: 7
...Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of 2002 U.S. Senator Paul Sarbnes of Maryland and U.S. Representative Michael Oxley of Ohio followed a series of corporate failures, which inacted the SOX Act based on Enron’s bankruptcy and other key organizations such as Worldcom, Tyco, Xerox, and Adelphia who were among the United States organizations executives in the headlines for misdemeanors and multi-billion dollar reassertions," (Dembinski, Lager, Cornford, Bonvin, 2005). The Sarbanes-Oxley Act of 2002, (SOX) was incorporated to strengthen the internal improvements and oversight of corporate control. The primary purpose is to shield and protect shareholders from fradualent activities within the public sector and the stock market. The table below provides a list of a few provisions implemented in SOX Act. Section 302 | Section 401 | Section 404 | Section 409 | Section 802 | Requires that corporate administration confirm that they have assessed the financial reports. | Requires that financial reports include disclosure about any applicable off-balance sheet responsibilities that may exist. | Requires organizations to state whether or not the business's internal mechanism technique are sufficient and operative. | Requires administration to update the public of important budgetary matters when they occur, instead of waiting until the annual or quarterly report. | Imposes penalties for abuses of the SOX rules, which could lead to fines or some jail time. | A description...
Words: 1125 - Pages: 5
