Analysis of the Sarbanes-Oxley Act

Sarbanes-Oxley Act of 2002 (SOX), enacted on July 29,2002, is a United States Federal law that imposed new rules and regulations for all US public companies.

The Sarbanes-Oxley Act, frequently known as the SOX. The act was passed on in 2002 as a federal United States law. The law was drafted in response to the numerous numbers of financial scandals performed by high profile corporations such as Johnson & Johnson. The action has created a new company standard of responsibility in order to protect the valued stakeholders, as well as the public, from the deceitful practices of various organizations. The Sarbanes-Oxley Act

After a prolonged length of corporate scandals involving big public businesses from 2000 to 2002, the Sarbanes-Oxley Act changed into enacted in July 2002 to restore buyers' self-belief in markets and near loopholes for public groups to defraud traders. The act had a profound effect on company governance within the country. The Sarbanes-Oxley Act requires public groups to bolster audit committees, carry out inner controls assessments, set personal liability of directors and officers for accuracy of financial statements, and enhance disclosure. The Sarbanes-Oxley Act also establishes stricter crook consequences for securities fraud and changes how public accounting companies operate their corporations.

Financial regulation is a critical aspect that helps the stakeholders to ensure that companies present accurate and reliable information to its stakeholders. In Dr. Jasso’s article “Sarbanes-Oxley-Context & Theory”, he addresses the Sarbanes-Oxley Act from a historical and philosophical context, where the firm is depicted by both philosophers which are Aristotle and Adam Smith. They are the leading thinkers on the concept of business and capitalism and how it impacts our society as a whole. Next, Dr. Jasso also examines the problems of market failure and information asymmetry, and he explains how these theories related to the SOX and corporation’s bad behaviors. Lastly, he analyzes the SOA from policy analyst’s perspective. Overall, the author argues that SOX is an effective and good legislation because it is a reactive policy that response to firm’s unethical and bad behaviors such as the accounting fraud on Enron, Adelphia, and Global Crossing. The author also believes that SOX will be continuing benefit the stakeholders such as the investors in the futures, and it will be cultivating good corporate ethical behaviors as well. I think that the

Due too many fraudulent activities in companies such as Enron, WorldCom, and Tyco International consumers became aware that something needed to change. As a result, Congress passed the Sarbanes-Oxley Act (SOX). SOX gave the public and investors a renewed confidence and strengthen corporate governance to insure that companies are reporting their financial information correctly and accurately.

After the demise of Enron due to accounting fraud, the Sarbanes-Oxley (SOX) Act was created by the government to establish penalties for corporate fraud and require companies to have a code of ethics along with transparency accounting for shareholders (Ferrell, Fraedrich, & Ferrell, 2013). In other words, the Sarbanes-Oxley Act provides a set of checks and balances making it more difficult for a corporation to defraud shareholders. The Sarbanes-Oxley Act created the Public Company Oversight Board, which is responsible for monitoring accounting firms and establishing the rules that must be followed (Ferrell, et al, 2013).

Global bribery scandals in the 1970s brought about the first developmental period of codes (Messikomer & Cirka, 2010, p. 57). Later, after the public discomfort towards continuous ethical lapses of major U.S. corporations, the United States Congress enacted the Sarbanes-Oxley Act of 2002 on July 29, 2002. This Act required American companies to reveal whether it has adopted a code of ethics (McCraw, Moffeit, & O’Malley, 2008; Schwartz, 2004). In this Act, the term ‘‘code of ethics’’ referred to written standards that are designed to deter wrongdoing and to promote

Indeed accountants are ethically obligated to report financial information accurately. In effect, Emerson, Conroy and Stanley (2007) stated that corporate scandals that made news, including Enron and WorldCom, triggered the public attention on the accounting practices that caused the fall of these companies. Consequently, the debate focused on blaming accounting practices or the standards. In order to resolve the issues of the standards, the US Congress has passed the Sarbanes-Oxley Act of 2002. In fact, the American Institute of Certified Public Accountants (AICPA) revealed that this Act represented the most crucial legislation that affects the accounting profession since 1933. Moreover, one of the provisions of Sarbanes-Oxley constitutes

According to Wharton School study, most companies de-listed their shares in an attempt to avoid the high costs of complying with the SOX Act, with some smaller companies listing costs of as high as $500,000 to comply. Some companies, however, de-listed to avoid outside monitoring and scrutiny, leading the study’s authors to suspect that firms were not being managed in the most efficient way or that their compensation was excessive. The study found that some of the firms with “higher free cash flow and lower-quality accounting” were more likely to “go dark” – to deregister from the SEC and become private firms (AP, 2004). Independence of board members may also place hardships on smaller companies. Many publicly listed small companies have few board members, and the chief financial officer may act in the capacity of other positions. Smaller firms may not have the resources necessary to recruit qualified individuals to meet independence requirements.

In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the

A company discloses their financial reporting and other financial information with their shareholders, creditors, financial analysts, and employees. The creditability of a company’s financial information hinges on its internal control of effectively adhering to governing regulations. According to Epstein (2014) the Sarbanes-Oxley Act of 2002 was established to eradicate companies from submitting fraudulent financial reporting. “The Sarbanes-Oxley Act changes management’s responsibility for financial reporting significantly. The act requires that top mangers personally certify the accuracy of financial reports” Blokhin (2018). This improves the quality of financial information being presented permitting decision makers the ability to have

publication of corporate ethics also helps firms operate in a socially responsible aspect; company executives may say one thing, and what they are actually doing is totally different than what they may have publically stated. Evidence shows that companies can be engaging in socially responsible activities and at the same time have unethical pursuits (Clancy, 2012); it is for this reason that SOX makes it mandatory for companies to define what is the right thing to do in the course of providing its services.

The Sarbanes-Oxley Act of 2002 is legislation passed by the U.S. Congress to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise, as well as improve the accuracy of corporate disclosures (Rouse & Spurzem, 2013). SOX were established as result of huge organizations being involved in financial indignity that happened in the early 2000s at popular companies such as Enron, WorldCom and Tyco that effected investors trust. One of the advantages of SOX is that companies are forces to be accountable for their work. They are no longer allowed to mislead investors for their own gain. Those that carry the responsibility of reporting financial information are now being held accountable for the way they choose to use their knowledge. The disadvantages are it is a costly process. It is a strict rule with high consequences, but no solid guideline on how to implement the system the act encounters.

The Sarbanes-Oxley Act was enacted by Congress in 2002 in response to accounting fraud scandals involving several large corporations including Enron, WorldCom, HealthSouth and Tyco. (Reed, Pagnattaro, Cahoy, Shedd, & Morehead, 2013) The bill’s purpose was to protect investors from accounting fraud by mandating strict reforms in financial disclosures, appointing an audit oversight board (PCAOB), and increasing the SEC’s power regarding governance issues. Although there have been some mixed feelings regarding the implementation of stricter government controls through legislation, the forced compliance seems to have largely had a positive impact on the auditing procedure. (Reed, Pagnattaro, Cahoy, Shedd, & Morehead, 2013)

The Sarbanes-Oxley Act of 2002 (SOX) requires organizational assessments to focus on corporate governance over broad systemic firm-wide checks and balances, including risk management, communications, the whistleblower provision, and conflict-of-interest issues (Farrell, 2005). The responsibility of maintaining effective internal controls lies strictly on CEO’s and CFO’s as they are responsible for signing off on the financial statements. Any violations can be subject to criminal penalties.