In 2002, Senator Paul Sarbanes (a Democrat from Maryland) and Congressman Michael Oxley (a Republican from Ohio) crossed the aisle to develop a new law to further regulate the accounting, auditing and financial reporting of companies publicly traded in United States. The Sarbanes-Oxley Act of 2002 (SOX) (also known as the Public Company Accounting Reform and Investor Protection Act of 2002) passed because of the demand of the American people to see reform in response to the widely publicized instances of fraud and corruption in large US companies. In the ensuing years, many groups have praised the act and the effect it has had on restoring confidence in US businesses. Other groups have maligned the legislation declaring it unnecessary and excessive in its demands. Congress needed to enact some accounting, auditing, and financial reporting reform in the wake of the financial scandals at Enron and WorldCom, but the Sarbanes-Oxley Act of 2002 introduced an excessive amount of government regulations and oversight that has had a detrimental effect on business.
After major corporate and accounting scandals like those that affected Tyco, Worldcom and Enron the Federal government passed a law known as the Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act. This law was passed in hopes of thwarting illegal and misleading acts by financial reporters and putting a stop to the decline of public trust in accounting and reporting practices. Two important topics covered in Sarbanes-Oxley are auditor independence and the reporting and assessment of internal controls under section 404.
Praises and Criticisms
Whenever a new bill of legislation is signed into law, there will always be criticisms and praises of the legislation. Some will argue the new legislation is doing an effective job and fulfilling its intended purposes. On the other hand, some will argue the new legislation creates new costs to society, both financially and socially. In the case dealing with the Sarbanes-Oxley Act of 2002, the new legislation received scrutiny from many, while others felt the Sarbanes-Oxley Act successfully complete its intended goals.
The Sarbanes-Oxley Act of 2002 is the most significant Federal law that impacts public companies to be introduced since the Securities Acts of 1933 and 1934. This legislation set new or enhanced standards for all U.S. public company Board of Directors, top management, and the public accounting firms that audit public companies. The Sarbanes-Oxley Act of 2002 (“SOX”) was introduced in response to a number of accounting scandals around the turn of the millennium, including Enron, Tyco, and WorldCom. Since 2002, SOX has had significant impacts on internal controls, financial reporting, and the accounting profession.
The misrepresentation of corporate finances has been a frequent news headline during the last ten years, and the negative impact of these actions has had a severe impact on the economy. The temptation can be overwhelming for corporate leaders to step over the legal line in attempts to maximize corporate earnings, which also affects their financial compensation. Companies that ultimately collapse from these inappropriate financial behaviors, eventually put a heavy burden on the economy and many sectors of society. Corporate fraud is defined as “violations of the Internal Revenue Code (IRC) and related statutes committed by large publicly traded (or private) corporations and/or by their senior executives” (Corporate check format of cite [#1]). Employees, lenders, investors, overall financial markets, and the communities in which theses corporations reside are all adversely impacted when one of these corporations fail. “Some of these problems evolve from the interpretation of complex accounting rules” (Six Years).(Sentence is out of place – put in SOX section?)
H.R.3763 - The Sarbanes-Oxley Act of 2002
A lot has been made, perhaps without justification, of the July 30, 2002 passage of H.R. 3763, The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley" or The Act). Having read the Act, I suspect that the great praise is unfounded. I intend to address three issues presented within the act. First, I will address stock options as considered (or neglected, as the case may be) by Sarbanes-Oxley.
Wells, J. T. (2007). Corporate fraud handbook: Prevention and detection. Hoboken, N.J: John Wiley & Sons.
When operating a business having internal controls protects the corporation from internal and external theft along with ensuring employees within the company are acting ethically and within the law. Internal controls set safeguards in place to discourage unauthorized use and theft from current employees and to reduce internal errors or irregularities in the accounting process, which could be construed as misrepresenting the true financial status of the company. The chances of a company employing a person who has the ability to steal money has been shown to be greater when there are no checks and balances to monitor the financial statements and to deter a normally honest person. With the scandals, which have plagued publicly traded companies in order to protect the investors Congress passed the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act or SOX is considered one of the most important laws to be passed in recent decades because this Act forces publicly traded corporations to monitor and maintain a proper system of controls over the accuracy of the financial statements. After the passing of the SOX corporations are held liable for the misrepresentation of their financial statements and can be fined or representatives of the company overseeing the controls of the financials can be imprisoned if found to be maliciously misrepresenting the company’s financial numbers.
The act introduced changes to the regulation of corporate governance. The intent of the act is to protect investors from inaccurate financial reporting. It sets forth strict compliance regulations and harsh penalties for violations (Cross & Miller, 2012). The Sarbanes-Oxley Act is made up of eleven titles designed to restore public opinion and trust. The titles address issues independent of one and another, but it is the fluidity among them that allows them to operate as one. The act requires companies to establish internal controls to safeguard the integrity of its financial reporting. In turn, these controls are designed to provide shareholders a level of confidence in the company’s discloser reports. Also a, year-end financial audit is completed, along with an assessment of the overall effectiveness of the company’s internal auditing programs (Cross & Miller,
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA