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The Sarbanes-Oxley Act

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Sarbanes-Oxley Act (SOX)

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Introduction

The Sarbanes-Oxley Act is a legislation aimed at increasing the accuracy of financial statements that were issued by companies that are publicly held (Livingstone, 2011). The passing of this act was a response to some of the financial malpractices that took place at companies such as WorldCom and Enron. According to Livingstone, making ethical decisions is critical because ethical lapses can lead to severe unforeseen consequences (Livingstone, 2011). This paper will discuss the effects of the Act on the audit committees of public company boards of directors as well as outside independent audit firms. The main advantages and disadvantages of the Act and recommendations of the changes that should be made to the act will also be included.

Audit Committee of Public Company Boards of Directors

According to section 301 of the Sarbanes-Oxley act, all the members of the audit committee will be members of the board of directors of the public company and be required to be otherwise independent (AICPA, 2004). In addition to this, Keinath and Walo (2004) state that one member of this committee will need to be an expert in the field of financial management. These requirements are likely to introduce changes in the composition of the audit committees of some public companies. According to a survey conducted by Keinath and Walo, 10% of companies did not have at least one member with expertise in financial management in their audit committees meaning they would have to alter the composition in order to ensure compliance to the Act. In addition to this, some companies made exceptions when it came to ensuring that members of the audit committees were independent (Keinath a...

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...Retrieved November 9, 2013 http://www.bizjournals.com/kansascity/stories/2007/05/07/focus3.html?page=all

Keinath, A.K. Walo J.C.(2004) Audit Committee Responsibilities. The CPA Journal, November 2004 Issue. New York: The New York State Society of CPAs.

Livingstone, L. (2011) Ethics Made Easy. North Charleston: CreateSpace

Summary of the Provisions of the Sarbanes-Oxley Act of 2002 (2004) AICPA. Retrieved November 9, 2013 http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/FraudPreventionDetectionResponse/Pages/Summary%20of%20the%20Provisions%20of%20the%20Sarbanes-Oxley%20Act%20of%202002.aspx

The Sarbanes-Oxley Act at 10: Enhancing the reliability of financial reporting and audit quality (2012). Ernst & Young. Retrieved November 9, 2013 http://www.ey.com/publication/vwluassetsdld/soxat10_jj0003_july2012/$file/soxat10_jj0003_july2012.pdf?OpenElement
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