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.
This paper 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 reattract 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 forever. Corporate greed was the primary reason in the downfall of Global Crossing, Enron and MCI WorldCom. The paper shows that the governing bodies, the Senate, NASD, the Securities and Exchange Commission and other powers that be decided to act and in 2002, the Senate introduced the Sarbanes-Oxley Act of 2002. The paper discussed how this new law impact...
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...ey Act of 2002)(Book Review): An article from: Strategic Finance" This digital document is an article from Strategic Finance, published by Institute of Management Accountants on May 1, 2004. The length of the article is 1012 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.
Prentice, R. A. (Nov., 2004) "Guide to the Sarbanes-Oxley Act: What Business Needs to Know Now That it is Implemented" Enron was once the seventh largest company on the Fortune 500, but after the greatest business scandal of a generation and one of the biggest of the last century, Enron took bankruptcy and essentially blinked out of existence following a wave of revelations of accounting regularities and securities fraud.
On the surface, the motives behind decisions and events leading to Enron’s downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance. Hardly anyone—the company, its employees, analysts or individual investors—wanted to believe the company was too good to be true. So, for a while, hardly anyone did. Many kept on buying the stock, the corporate mantra and the dream. In the meantime, the company made many high-risk deals, some of which were outside the company’s typical asset risk control process. Many went sour in the early months of 2001 as Enron’s stock price and debt rating imploded because of loss of investor and creditor trust. Methods the company used to disclose its complicated financial dealings were all wrong and downright deceptive. The company’s lack of accuracy in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its downfall. The whole affair happened under the watchful eye of Arthur Andersen LLP, which kept a whole floor of auditors assigned at Enron year-round.
Dodd-Frank and Sarbanes-Oxley Acts are important legislations in the corporate world because of their link to public and privately held companies. Sarbanes-Oxley Act was enacted to enhance transparency and accountability in publicly traded companies. On the contrary, Dodd-Frank Act was enacted to disentangle the confused web of financial service company valuations. Actually, these valuations are usually hidden by complex and unclear financial instruments. The introduction of Sarbanes-Oxley Act was fueled by recent incidents of accounting frauds by top executives of major corporations such as Enron. In contrast, Dodd-Frank Act was enacted as a response to the tendency by banks, insurance companies, hedge funds, rating agencies, and accounting companies to serve up harmful offer of ruined assets and liabilities brought by systemic non-disclosure (Anand, 2011, p.1). While these regulations have some similarities and differences, they have a strong relationship with the financial markets.
It has been a decade since the Sarbanes-Oxley Act became in effect. Obviously, the SOX Act which aimed at increasing the confidence in the US capital market really has had a profound influence on public companies and public accounting firms. However, after Enron scandal which triggered the issue of SOX Act, public company lawsuits due to fraud still emerged one after another. As such, the efficacy of the 11-year-old Act has continually been questioned by professionals and public. In addition, the controversy about the cost and benefit of Sarbanes-Oxley Act has never stopped.
Enron used off-balance sheet entities to manipulate their earnings and hide its debt. Sarbanes-Oxley Act requires more disclosure of off-balance sheet entities. Also The Sarbanes-Oxley Act of 2002 requires auditors to distinguish audit services and non-audit services or to avoid any
A possible flaw of Sarbanes-Oxley is it failed to put up any resistance in thwarting the financial crisis. While the degree to which fraudulent behavior can be traced to the roots of the Great Panic of 2007 will likely be up for eternal debate, it might be telling that Sarbanes-Oxley effectively did nothing. It seems this could indicate that stronger incentives for whistleblowers (such as Dodd-Frank and perhaps other whistleblower protection regimes) are very necessary given the extreme social costs. This conclusion may be hasty, however, given the short time period between the enactment of Sarbanes-Oxley and the crash. Not only is the status of Sarbanes-Oxley still in flux over a decade later, but one has to consider the substantial learning and switching costs associated with a regime with such a substantial ruach. Certainly, this is not to say that additional protections may in fact be necessary given the putative reluctance of lawyers to report fraud, but Sarbanes-Oxley likely needed more time to really crystalize and provide some level of predictability before it can be declared a bust.
In my opinion, the Sarbanes-Oxley Act was a positive step taken by the government in order to control unethical practices by the corporations. Section 802 of the Sarbanes-Oxley Act is the most important sections of all the sections as it punishes the corporations who try to alter documents. After this act was enacted SEC was able to uncover one fraud committed by Valueline in 2009. This is one of the most important accounting reforms acts. If such extensive acts were there during Enron’s failure, all of these might have been avoided. Corporations in greed of money make shortsighted decisions, which affects not only the company but also the entire country and its economy.
The rise of Enron took ten years, and the fall only took twenty days. Enron’s fall cost its investors $35,948,344,993.501, and forced the government to intervene by passing the Sarbanes-Oxley Act (SOX) 2 in 2002. SOX was put in place as a safeguard against fraud by making executives personally responsible for any fraudulent activity, as well as making audits and financial checks more frequent and rigorous. As a result, SOX allows investors to feel more at ease, knowing that it is highly unlikely something like the Enron scandal will occur again. SOX is a protective act that is greatly beneficial to corporate America and to its investors.
Michael - Even with the many rules that existed, regulators responded the business scandals by passing the Sarbanes-Oxley Act of 2002. The act set new and improved standards for all U.S. public compani...
Holt, Michael F. The Sarbanes-Oxley Act: overview and implementation procedures. Oxford: CIMA Publishing, 2006. Print.
What makes the Sarbanes-Oxley Act effective is that it is “Administered by the U.S. Securities and Exchange Commission (SEC), SOX sets deadlines for compliance and publishes rules on requirements, covering a wide range of rules. The consequences for failing to comply with certain provisions range from fines to imprisonment” (Cunningham). The SOX also creates, “accountability of company executives and members of the board of directors” (Jahmani). The act essentially created several provisions to regulate and protect shareholders along with the general public from accounting errors and fraudulent practices in the enterprise. The accounting industry, financial reporting, and the auditing of public companies in particular must follow these provisions.
...The Sarbanes-Oxley Act deals with the proper filing of financial paperwork along with rules and regulations to follow while working as a top business (The Sarbanes-Oxley Act, 2002). Some of the consequences that derived from the Act include fines and possible imprisonment up to 20 years for destroying documents. It also made it a crime to destroy corporate audit records. Since the Sarbanes-Oxley Act was in place at the time Bernie Madoff was charged with security fraud, he received 25 years in prison for his wrong-doings (Bernard Madoff, 2014). These crimes by Madoff and Enron have made for safer business practices and stricter laws. However, to ensure cases of this magnitude do not occur again, companies must not only abide by mandated law, they must develop a culture deeply rooted in strong ethics. Character matters in a business just like it does in people.
The Enron scandal in the early 2000’s was a major scandal that was hard to miss (Ferrell, Hirt, & Ferrell, 2009). Enron has once ranked a Fortune 500 company with a network of $111 billion dollars (Ferrell, et. al., 2009). Enron dealt mainly with energy, but they also had interest in communications and paper (Ferrell, et. al., 2009). Enron was confident in their earnings and financial reporting, but after a year of gaining interest, Enron caved in and filed bankrupt (Ferrell, et. al, 2009).
The company concealed huge debts off its balance sheet, which resulted in overstating earnings. Due to an understatement of debts, the company was considered bankrupt in 2001. Shareholders lost $74 billion and a lot of jobs were lost because of the bankruptcy. The share prices of Enron started falling in 2000 and in 2001 the company revealed a huge loss. Even after all this, the company’s executives told the investors that the stock was just undervalued and they wanted their investors to keep on investing. The investors lost trust in the company as stock prices decreased, which led the company to file bankruptcy in December 2001. This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Through an organizational culture that focused on financial greed for self, illegal accounting practices, conflicts of interest partnerships, illegal business dealings, fraud, negligence, and massive corruption at all levels, the Enron scandal help to create new laws and regulations with stiff penalties if violated (Ferrell, et al, 2013). The federal government implemented the Sarbanes Oxley Act (SOX) (Ferrell, et al, 2013).