The Sarbanes-Oxley Act

Sarbanes-Oxley was put in place after accounting scandals left many investors questioning whether corporation’s financial reporting could be trusted enough to invest in. The ability to report pretty much anything in their financial statements left those investing in a vulnerable position. The new laws that governing accounting procedures and financial reporting have made investors more likely to invest knowing that the figures that they are basing their investment on closer to the truth of the company’s finances. Calling for an outside auditor to validate the financial statements made sure that company’s reported the true actions of the company leaving most feel more secure in their investment.

Unfortunately, all those efforts have not been vindicated because of the following reasons: Accounting did not cause the recent corporate scandals such as Enron and WorldCom. Unreliable financial statements were the results of management decisions, fraudulent or otherwise. To blame management’s misdeeds on fraudulent financial statements casts accountants as the scapegoats and misses the real issue. Reliable financial reports rely to a certain extent on effective internal controls, but effective internal controls rely to a large extent on a reliable management system coupled with strong corporate governance. when management deliberately or even unlawfully manipulates business processes in order to achieve desirable financial goals and present untruthful financial reports to the public, accounting systems are abused and victims rather than perpetrators.

The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.

The Sarbanes-Oxley is a U.S. federal law that has generated much controversy, and involved the response to the financial scandals of some large corporations such as Enron, Tyco International, WorldCom and Peregrine Systems. These scandals brought down the public confidence in auditing and accounting firms. The law is named after Senator Paul Sarbanes Democratic Party and GOP Congressman Michael G. Oxley. It was passed by large majorities in both Congress and the Senate and covers and sets new performance standards for boards of directors and managers of companies and accounting mechanisms of all publicly traded companies in America. It also introduces criminal liability for the board of directors and a requirement by

The Sarbanes-Oxley Act of 2002 was implemented and designed to “protect the interests of the investing public” and the “mission is to set and enforce practice standards for a new class of firms registered to audit publicly held companies” (Verschoor, 2012). During the early 2000 's, the world saw an alarming number of accounting scandals take place resulting in many corporations going bankrupt. Some of the major companies involved in these scandals were from Enron, WorldCom, and one of the top five accounting and auditing firms, Arthur Andersen. These companies were dishonest with their financial statements, assuring the public the company was very successful, when in reality they were not. This became a problem because if the public believes a company is doing well, they are more likely to invest in it. That is to say, once these companies were exposed, it caused a number of companies going bankrupt and a major mistrust between the public and the capital market. Consequently, the federal government quickly took action and enacted the Sarbanes-Oxley act of 2002, also known as SOX, which was created by the Public Company Accounting Oversight Board (PCAOB), and the Securities and Exchange Commission (SEC). Many have questioned what Norman Bowie (2004) had questioned,

The Sarbanes-Oxley Act of 2002 – its official name being “Public Company Accounting Reform and Investor Protection Act of 2002” – is

The Sarbanes Oxley Act came to existence after numerous scandals on financial misappropriation and inaccurate accounting records. The nature of scandals made it clear there are possible measure that could be used to prevent future occurrence of financial scandals. And the existence and effectiveness of Sarbanes Oxley has caused

In 2002 the telecommunication company, WorldCom committed one of the biggest accounting scandals of all time. They perpetrated over *1 $3.8 billion in fraud, leading to a loss of 30,000 jobs and $180 billion losses for investors . This is one of the several accounting scandals that led to the passing of Sarbanes-Oxley Act, which introduced the most comprehensive set of new business regulations since the 1930’s. The Sarbanes-Oxley Act (SOX) is an act that was passed by United States Congress in 2002. This act safeguarded investors from the likelihood of fraudulent accounting practices of publicly traded organizations by authorizing strict reforms to advance financial disclosures and prevent accounting frauds. With SOX being an extremely important piece of legislature it is necessary to understand the reasons why SOX was passed, how it was passed, what it entails, the aftermath of the act. To understand the events that lead to SOX passing it is imperative to grasp the business regulations that existed and allowed these accounting scandals to occur.

Corporations around the world have exhibited ethical business practices. However, some corporations gave into unethical business practices such as fraud, dishonesty, and scams. One particular dishonest act that remained common amongst companies such as Enron, WorldCom, and Tyco was the fabrication of financial statements. These companies were reporting false information on their financial statements so that it would appear that the companies were making profits. However, those companies were actually losing money instead. Because of these companies’ actions, the call to have American businesses to be regulated under new rules served as a very important need. In 2002, Paul Sarbanes from the Senate and Michael G. Oxley from the House of Representatives created what is now known as the Sarbanes-Oxley Act of 2002.

Some can say that the Sarbanes-Oxley Act of 2002 is working while some say that there still ways to get around to committing corporate fraud. Washington wants to crack down on corporate fraud so they came up with the Sarbanes-Oxley Act in 2002 that was designed to protect the interest of investors. “The Sarbanes-Oxley Act established oversight of public corporate governance and financial reporting obligations and redesigned accountability and ethics standards…” (Ferrell, O., Hirt, G., & Ferrell, L., 2009). The act was an important stepping-stone in the right direction especially when responding to the financial scandals of Enron and WorldCom. Those scandals shook customer’s faith and confidence in corporate management of private organizations.

The time frame is early 2002, and the news breaks worldwide. The collapse of corporate giants in America amidst fraud and stock manipulations surfaces. Enron, WorldCom, HealthSouth and later Adelphia are all suspected of the highest level of fraud, accounting manipulation, and unethical behavior. This is a dark time in history of Corporate America. The FBI and the CIA are doing investigations on all of these companies as it relates to unethical account practices, and fraud emerges. Investigations found that Enron, arguably the most well-known, had long shredding sessions of important documents and gross manipulation of stocks and bonds. This company alone caused one of the biggest economic

The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence.   In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting.   Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a

On December 2, 2001, less than a month after it admitted accounting errors that inflated earnings by almost $600 million since 1994, the Houston-based energy trading company, Enron Corporation, filed for bankruptcy protection. With $62.8 billion in assets, it became the largest bankruptcy case in U.S. history, dwarfing Texaco's filing in 1987 when it had $35.9 billion in assets. The day Enron filed for bankruptcy its stock closed at 72 cents, down from more than $75 less than a year earlier. Many employees lost their life savings and tens of thousands of investors lost billions. Who is to Blame? That is what at least a half-dozen Congressional Committees, the SEC, the U.S. Justice

The Sarbanes-Oxley Act was passes in 2002 in response to a handful of large corporate scandals that occurred between the years 2000 to 2002, resulting in the losses of billions of dollars by investors. Enron, Worldcom and Tyco are probably the most well known companies that were involved in these scandals, but there were a number of other companies guilty of such things as well. The Sarbanes-Oxley Act was passed as a way to crackdown on corporations by setting new and improved standards that all United States’ public companies and accounting firms were and are required to abide by. It also works to hold top level executives accountable for the company, and if fraudulent behaviors are discovered then the executives could find themselves in hot water. The punishments for such fraudulence could be as serious as 20 years jail time. (Sarbanes-Oxley Act, 2014). The primary motivation for the act was to prevent future scandals from happening, or at least, make it much more difficult for them to happen. The act was also passed largely to protect the people—the shareholders—from corporations, their executives, and their boards of directors. Critics tend to argue that the act is to complicated, and costs to much to abide by, leading to the United States losing its “competitive edge” in the global marketplace (Sarbanes-Oxley Act, 2014). The Sarbanes-Oxley act, like most things, has its pros and cons. It is costly; studies have shown that this act has cost companies millions of

The Sarbanes-Oxley Act of 2002 (SOX) was enacted into law in 2002 in the wake of corporation financial reporting scandals involving large publicly held companies. SOX instituted new strict financial regulations with the intent of improving accounting practices and protecting investors from corporate misconduct. SOX requires corporate executives to vouch for the accuracy of financial statements, and to institute and monitor effective internal controls over financial reporting. The cost of implementing an effective internal control structure are onerous, and SOX inflicts opportunity costs upon an enterprise as executives have