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Pros And Cons Of Sox Act Of 2002

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Sarbanes-Oxley (SOX) act of 2002 was put in place to protect investors from fraudulent activities by corporations. The Act significantly tightens regulation of financial reporting by public companies and their auditors and accountants. Penalties for falsified financial activities are much more severe ever since. Publicly traded companies are required to file periodic financial reports to inform the public with key information on a company's liabilities, revenue, assets, and business activities. This data is extremely important to the market and investors rely on it to decide whether to sell or buy stock, competitors and partners depend on on it to make better business decisions. All of this data plays a role key in evaluating a company's value and its stock price. So a false financial statements can be misleading and even lead to widespread repercussions. The SOX Act is named after its …show more content…

Enron which was the seventh-largest company in America at the time were involved in the scandal due to its accounting practices the company eventually collapsed. Many Enron executives were ultimately convicted of financial crimes for falsifying the company's assets, overstated its earnings and hiding liabilities. SOX requires a company’s chief financial officer to certify that its financial reports are accurate. All publicly traded company are required to have internal controls in place to confirm accuracy in financial disclosures. SOX makes it a crime to deceive shareholders of publicly traded companies by the filing of false financial reports. Executives face fines ranging up to ten years imprisonment or $1 million dollars for knowingly attesting financial reports that don't comply with the regulations. Section 802 of SOX also criminalize executives for the fabrication and destruction of records in efforts to obstruct or delay an

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It is very hard to say that SOX would prevented the scandal but they would have being exposed sooner because of the Sarbanes-Oxley section and titles rules and regulation such as; Titles II the auditors partner rotation; Title III, the responsibility or reporting accurate financial corporate reports. They reported depreciation expenses of garbage trucks as a salvage values, and subjective to other assets that did not have any value. Title IV the financial disclosures of financial reports was overstated or understated in some reports to inflates a high profit margin. The Titles VIII, the alteration and destruction of records that would protect the

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As stated by Karen Seymour, Chief of the Criminal Division in Manhattan’s U.S. Attorney’s office in an interview: “I thought it was going to be a really good tool, But it never really developed.” Karen had expectations of seeing CEOs and CFOs being held responsible for fraud. However, over ten years later and only a few defendants have been charged, of that amount even fewer convicted. One of the most notable SOX cases against HealthSouth CEO Richard Scrushy, ended up in an acquittal.

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Following the Great Depression, there was a dire need for regulation and full disclosure of accounting records within the securities markets. “Some feel that insufficient and misleading financial statement information led to inflated stock prices and that this contributed to the stock market crash and the subsequent depression” (Spiceland 9). When investors did not have accurate financial information at their disposal, they were prone to making poor investing decisions. The Securities & Exchange Acts of 1933 and 1934 were the first pieces of legislature to require public companies to be audited quarterly and annually. These acts were designed to restore investor confidence in the markets.

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Take Enron for example, in the later 1990s its stated worth was estimated to been around $70 billion dollars, but after internal review it was found that much of its debt was allocated to falsely created businesses leaving its stated assets to be significantly lower than its actual debt. The scandal was such an issue for all its investors and the government predominantly because its net value decreased radically and by December 2, 2001 the company declared bankruptcy. One of the main issues of this scandal that investigators found was that the company hired auditor, Arthur Andersen, was conspiring with the CEO and CFO to falsify the financial documentation. Had the SOX Act been implemented prior, these falsifications would have been addressed long before the company declared bankruptcy. Of the eleven sections in the SOX Act, Title III Section 802, address what constitutes as fraud and would have held the Enron and Arthur Anderson accountable for submitting proper documents.

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Penalties include “twenty-five years in prison for security Fraud or twenty years in prison for making false statements by an executive.” (Miller-Nobles, T. L., Mattison, B., & Matsumara, E. M.

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Proponents of the act argue that the law was necessary to restore public faith and prevent another outbreak of accounting frauds. On the contrary, opponents argue the law is detrimental to the economy and particularly harmful to small firms due to the high implementation cost it imposes. Given the preceding, the report examines the cost and benefits associated with the implementation of Sarbanes-Oxley Act. The report is composed of four parts: (1) Summary of SOX and its requirements (2) Costs of SOX (3) Benefits of SOX (4) Conclusions and

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With pressure from shareholders, C-level managers, and others, the financial manager may find themselves in a situation where revenues may be misreported in order to meet goals. In 2002, Xerox was found at fault of prematurely recording $3 billion in revenue, and $1.5 billion in pretax earnings. This misreporting of revenue and earnings was partly due to to having to contend with declining sales and profit (Xerox, 2002).There are multiple federal safeguards in place to reduce financial reporting abuse. One such safeguard is the Sarbanes-Oxley Act, or SOX. The Sarbanes-Oxley Act “holds corporate advisors who have access to or influence on company decisions legally accountable for any instances of misconduct” (Titman et.

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The Sarbanes-Oxley Act also is known as the SOX act, is an act passed in 2002 by United States Congress in retaliation to the billion dollar fradulent accouunting practices, scandals, and activities of corporations. It mandates that management creates internal controls and keep accurate reports on the accuracy of controls. Moreover, the SOX act mandates that senior management attests to the legitamacy of financial reports and statements. Likewise, the adequacy of internal control systems must be authenticated and monitored by independent external auditors. Failure to comply with any provisions of the act can result in steep fines and even imprsonment.

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Farsum Chaudhary Professor Pearl Unethical Issue- ENRON The ENRON Scandal is known to be one of the most notorious scandal cases within American history. What ENRON consisted of was a group of company executives involved in White Collar Crimes, which were revealed October 2001. White Collar Crimes are defined financially-based criminal activity typically taking place in a setting in which its participants hold advanced knowledge in regards to employment that is considered to be prestigious. Term regulation by the government involves the government keeping a check on the companies and regulating them by keeping a watch on them.

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This chapter used companies, such as Colombia, in the beginning and Seirra Corporation in the four financial statements. This chapter no only explained how it should be done, but it also explained the scandals and some that had scandals. Some of the companies talked about were Enron, WorldCom, HealthSouth, and AIG. Scandals are not good for corporations and businesses because it leads a potential investor or creditor to not trust the financial statements, because they were lies. Since scandals became an idea that was thought to be good, so corporations would get investors or creditors, it led to congress passing what the Sarbanes-Oxley Act (SOX).

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Accounting fraud is an intentional and unethical crime, and typically, in the long run, those involved are caught and

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It is observed by researches and analysts that unethical business and accounting decision has took place in Enron Company especially CFO Jeffrey Skilling and CEO Ken Lay who played major roles in this scandal. Enron involved in business risks like fraud and the company failure happened when it entered into conservative transactions. The problem Enron faced was that they treated their loans as revenues yet it is not shown in the balance sheet, in other words, Enron did not treat them as current liabilities such as accounts payable so they did not show their creditors as liabilities, which had mislead their customers and investors. Because the company had taken the help from others in hiding a large amount of company debt (partnerships with various enterprises), it shows that unethical actions had been carry out. For example, Enron did

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Altering Financial Statements Major companies with extensive operations such as Chesapeake Energy have several areas in which their financial statements can be altered intentionally. This can be due to issues such as motivation of employees, opportunities that may arise, and rationalizations individuals make for such actions. One area in which individuals may alter such financial information relates to understating expenses to boost profits. There are several reasons to commit such fraud and report overstated profits. Staff members may be under pressure by higher level management by standards set in the beginning of the year, in addition, bonuses and compensation packages may solely depend on profits for the year.

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The false accounting records were unethical because it means management was enriching themselves. They were getting earnings based on the false availability of funds. They also did this to keep their jobs. When a company is not performing financially well the top positions are the ones usually at risk of being retrenched, as a result of implying the company was financially stable they were protecting their jobs. False accounting also results in duping investors that trust the financial records of the company.

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SAS no.82 (AICPA, 1997) defined financial statement fraud as the intentional and deliberate manipulation or misstatement of the data appearing of the financial statement making it misleading , in order to affect the judgment of investors and users of those financial statement. Financial statement fraud has been tied to the concept management fraud due to the primary role that management plays in providing reliable financial reports ,therefore it's the management responsibility to fairly present and report the financial information affecting

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