Sarbanes Oxley SOX - Effective Governance Essay

The Sarbanes-Oxley act also goes by ‘Public Company Accounting Reform and Investor Protection Act’ or also the

The Sarbanes-Oxley Act was a law created in 2002 to ensure that the boards of public companies oversee their companies in a more competent and transparent way in order to protect investors. Section 302 refers to the obligations of the corporate officers who sign the financial reports. The officers are responsible for verifying that the report is accurate and represents a true picture of the company’s financial condition. Section 401 states that The Commision must evaluate the financial reports. Section 404 covers the company’s internal control structure and the requirements of the accounting firm in assessing internal controls and reporting procedures. Section 409 requires a company to disclose information on changes to financial conditions or

The act is administered by Securities and Exchange Commission (SEC), which settles deadlines for compliance and publishes rules on requirements that define what records need to be stored and for how long. Interestingly, SOX does not effect only the financial side of corporations but also the IT department which are entitled to store the corporation’s electronic records. The act states that electronic messages and records must be stored for a minimum of five years (SEARCHCIO, n.a.).

Sarbanes-Oxley contains eleven titles and covers a wide range of topics from the implementation of new compliance requirements to the criminal penalties of any

A seven-year retention period for audits work papers, second partner review and approval, evaluation of whether internal control structure and procedures include records that accurately reflect transactions and dispositions of

Furthermore, according to soxlaw.com an online guide to the Sarbanes-Oxley Act the major compliances to the act rest on 5 sections:

The following was an Act passed by U.S. Congress in 2002 in response to a loss of confidence among American investors suggestive of the Great Depression; President George W. Bush signed the Sarbanes-Oxley Act into law on July 30, 2002. SOX as the law was quickly entitled, was planned to guarantee the reliability of publicly reported financial information and reinforce confidence in U.S. capital markets. SOX contains expansive duties and penalties for corporate boards, executives, directors, auditors, attorneys, and securities analysts. SOX works to protect investors from the possibility of fraudulent accounting activities by corporations. The Act mandated a number of reforms to improve corporate responsibility, improve financial disclosures

The Sarbanes-Oxley Act, enacted as a reaction to the WorldCom, Enron, and other corporate scandals, improved the regulatory protections presented to U.S. investors by adding an audit committee requirement, intensification of auditor independence, increasing disclosure requirements, prohibiting loans to executives, adding a certification requirement, and strengthening criminal and civil penalties for violations of securities laws.

For just a brief moment, imagine yourself sometime in the future. You have been recently married, you just started a brand new job, and are looking to start a family. As a way to plan for financial security, you have done some research into financial investments. You are hoping to build a portfolio, which will be a mix of low, median, and high-risk stock. Flash forward into the future by 20 years. During this time, the stock prices have appreciated and depreciated, yet overall done remarkably well. All of a sudden, one morning you wake up to some disastrous news. One of the company’s you invested in, which held a majority of the portfolio of stock, has been participating in financial fraud. While they had been presenting themselves well, under the surface deceptive accounting and financial practices were being used and now the company is broke. All of your hard earned money which was invested in that company is now gone-down to the last penny. Does this sound vaguely familiar? It should. In 2001, Enron, a United States company, became the very largest bankruptcy and stock collapse in history (Columbia Electronic Encyclopedia). As a result, in 2002, The Sarbanes-Oxley Act was passed as means to prevent fraud, improve financial reporting, and gain back the trust that was previously lost by investors. Although numerous publicly traded companies, which are companies registered on the U.S. stock exchange, were less than happy to welcome

One of the big advantages of this act is that companies are being held more accountable. There are specific rules about how the company must handle their accounting practices. The Sarbanes Oxley Act dictates what a company can, and cannot do. This means that the accounting of the company will strive to be more accurate.

In the case of Accounting for Enron, the case concerned one of the largest corporate bankruptcies in the US history at the turn of the 21st century. It was Enron Corporation, a one time seventh largest most successful US company, sixth largest energy company in the world, valued at over $70 Billion; they filed for chapter 11 on December 2, 2001. Just the year before, Enron posted a 57% increase in sales between 1996 and 2000. And Enron shares hit a 52-week high of $84.87 per share in the last week of 2000 (O’Leary, 2002). As the story unfolds, investors lost billions of dollars and thousands of people lost

What do you think of when you hear these three names: Enron, Tyco, and Worldcom? Most people nowadays would say that they think of massive corporate corruption, accounting and investor fraud, corporate collapse, and extensive trials and jail time for corporate officials. At the dawn of the new millennium, the leaders of these three corporations, along with dozens of others, committed massive financial fraud against their investors, employees, and the rest of their stakeholders. In response to these incidents and to help answer the public’s outcry for justice, the United States Congress

The Sarbanes-Oxley Act of 2002 (SOX) was named after Senator Paul Sarbanes and Michael Oxley. The Act has 11 titles and there are about six areas that are considered very important. (Sox, 2006) The Sarbanes-Oxley Act of 2002 made publicly traded United States companies create internal controls. The SOX act is mandatory, all companies must comply. These controls maybe costly, but they have indentified areas within companies that need to be protected. It also showed some companies areas that had unnecessary repeated practices. It

Also, all companies must implement an accounting system that provides “reasonable assurance” that all transactions entered are accounted and legal. Any person making false statements or altering accounting books will be in violation of the law. This part of the law was writing to help with the detecting of bribery. This is also something that was done in the past, where higher officials in a company would either force or pay an accountant to make false accounts in the books.

The Enron case is well known for being the largest corporate bankruptcy in American history. Thousands of people world-wide lost billions of dollars, lost life savings, and lost their jobs. Due to the vast corruption, greed and the blatant disregard for integrity from the very top of Enron leadership, world markets crumbled and investor confidence in corporate America was severely damaged (Chandra, 2003.)