TO: John Smith, Owner FROM: Katherine Hall-Blair, Financial Advisor DATE: May 24, 2015 SUBJECT: Sarbanes-Oxley Act The Sarbanes-Oxley Act (SOX) of 2002 was signed into law in order to bring some form of ethics to the business world. While most corporations do have an ethics policy in place, there are some that do not follow these practices. THE EFFECTS OF ENRON Prior to 2001, Enron was a thriving company that was the world’s largest pulp and paper, gas, electricity, and communications company (Peavler, 2015). They were considered the most financially sound US Corporation. In order to allow competition, the government had deregulated the oil and gas industry and Enron jumped right in, with its wholesale earnings quadrupling in the …show more content…
Top officials of Enron had been embezzling money and reporting deceptive earnings to their investors. Because of these actions, in 2001, Enron went bankrupt (Peavler, 2015). THE EFFECTS OF SOX Thanks, in part, to the Enron scandal, President Bush signed the Sarbanes-Oxley Act of 2002 into law. This law was intended to put in place “reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the “Public Company Accounting Oversight Board”, also known as the PCAOB, to oversee the activities of the auditing profession” (U.S. Securities and Exchange Commission, modified 2013, October 1). THE CHANGES With this new law came changes to the way companies do business. A few ways this was done: Companies were encouraged to develop codes of ethics and, if they don’t have a code, must be able to explain the absence of such. Companies must hire external auditors to evaluate internal controls. Board members must be more proactive because they have been charged with greater power and more responsibilities with regard to the oversight of auditors (Maleske, 2012). Public companies must now include an internal audit control report along with their annual audits (Slaughter,