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The Sarbanes-Oxley Act Of 2002 (SOX)

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Abstract On July 25, 2002, Congress passed the Sarbanes-Oxley Act of 2002 (SOX) in reaction to a series of financial accounting scandals involving companies like Enron, Tyco and WorldCom. SOX Act is a direct result of the legislature reaction to the above mentioned scandals. This paper presents the objective and main components of the SOX, criticism of SOX. The paper also deals with the economic impact of SOX and whether SOX met its goals. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act (SOX) legislation came into being on July 30th of 2002 and brought about major changes to corporate governance and financial practice in the United States. The Act was developed in response to a rash of corporate scandals involving companies like Enron,
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Sarbanes-Oxley Act of 2002 is a law enacted by US congress in July 30, 2002. The bill consists of 11 sections and was created as a reaction to high numbers of fraud and business misbehavior in major US corporations. The act clearly imposes responsibilities for the board of directors and defines the regulations all corporations have to comply with. The bill does not affect only US public companies, but it goes beyond that to over control companies under a US presence.

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al., 2011). SOX helps protect shareholders by holding senior executives individually responsible for the “accuracy and completeness of the firms’ financial reports” (Titman et. al., 2011). The Securities Exchange Act of 1934 created the Securities Exchange Commission, or SEC. The SEC brings “hundreds of lawsuits against people for violating securities laws” (Securities, 2014).

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1. Explain in your own words how SOX has impacted financial statement fraud. The Sarbanes-Oxley Act (SOX) was enacted in 2002 as a result of the numerous financial statement fraud perpetrated by major corporations from various industries. One of the many objectives of SOX was to create more independence between the financial auditors and executive management. Financial Statement fraud is usually perpetrated by executive management.

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Due to the Enron scandal, there needs to be implementation of new recommendations to prevent this from happening again to other firms or companies. The introduction of the Sarbanes Oxley Act of 2002 was implemented to strengthen rules and regulations while audit procedures are being performed. To this day, all auditors follow the PCAOB which stands for the Public Company Accounting Oversight Board. The PCAOB is used to establish and maintain high quality auditing and professional practice standards for audits of public companies, issuers, and broker dealers to obtain accurate and informative information and audit reports. (cite) I agree with these standards because the implementation of the Sarbanes Oxley Act of 2002 was created to protect

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In 2002, Paul Sarbanes and Michael Oxley came together to present the Sarbanes-Oxley Act of 2002 (SOX), changing the business world forever. Although SOX was passed over a decade ago, continuous debates remain on numerous faucets surrounding this piece of legislation. The legislation has created extreme feelings and controversy regarding the advantages and disadvantages for public organizations. Along with the passing of SOX, the Public Company Accounting Oversight Board, (PCAOB) was established to oversee and regulate the new changes for public organizations. Discussed below are some of the advantages and disadvantages SOX has prompted since it was passed.

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Introduction According to the Sarbanes-Oxley Act of 2002, the action requires that auditors report on the internal controls and financial statements of a publicly traded company. It will be the purpose of this report to provide a product that explains in detail how the audit of Bullseye company will be conducted. Furthermore, this report will also establish how the effectiveness of the managers of Bullseye will be tested based on how well they sustained internal control over the given period (Pany, 2019).

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In 2004, Securities and Exchange Commission charged Qwest Communications International Inc., one of the largest telecommunications companies in the United States, with securities fraud and other violations of the federal securities laws. Throughout the paper I will explain in details the fraudulent activities that Quest Communication International was charged with. What happened to the agents of the company and most important the shareholders. Finally, how did quest communication violate the Sarbanes Oxley Act of 2002? Qwest fraudulently recognized over $3.8 billion in revenue and excluded $231 million in expenses as part of fraudulent scheme to meet optimistic and unsupportable revenue and earnings projections.

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Why was the Sarbanes-Oxley Act (SOX) of 2002 created? Here are direct and indirect reasons. According to U.S Securities and Exchange Commission, the stock market develops due to “new economy” in the mid-1990s. The biggest gainers are persons who attempt to an undertaking in initial public offering(IPO) market.

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Bumgardner, L., (2003). Reforming Corporate America: How does the Sarbanes-Oxley Act impact American business? Retrieved from http://gbr.pepperdine.edu/2010/08/reforming-corporate-america/ Kuratcryk, M., (2007). Ethics of Executive Compensation. Retrieved from https://uwaterloo.ca/centre-for-accounting-ethics/sites/ca.centre-for-accounting-ethics/files/uploads/files/mkuratczyk-estey2007.pdf Mcgregor, J., (2013).

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Due to fraud in financial reporting, the Sarbanes-Oxley Act of 2002 was passed to restore the confidence in the accounting profession, by lowering corporate scandals and unethical behavior. The act requires upper management to certify the responsibilities of the financial statements, including ensuring proper internal controls, supervising the audits of such reports, and ensuring the accuracy in those reports. SOX also increased penalties for fraudulent financial activity and increased independence for auditors. The Financial Accounting Standards Board (FASB) was established in 1973 to form standards for accounting and reporting standards for public and private companies and for non-profit organizations that follow Generally Accepted Accounting Principles (GAAP) in the United States.

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By definition, a CEO is “the highest ranking executive in a company whose main responsibilities include developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the board of directors and the corporate operations” (Dictionary, 2015). The CEO position holds a lot of power and responsibility and, in my opinion, should be ethically accountable to the shareholders and employees of the companies they support. CEOs are also often the face of an organization, and their actions are a direct reflection on the company as a whole. In many ways this causes the masses to be judged by the actions of one person.

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Internal analysts forewarned that the project to fund Solyndra might not be a good move since they thought that they would be out of money by September 2011(Murphy, 2012). Coincidently, the same month and year the company went bankrupt and closed operations. It has been proven that the Department of Energy tried to warn the Obama Administration that Solyndra would eventually run out of money and investing would cost taxpayers more money in the long run (Ten Lessons of, 2012). Additionally, it has been speculated that the company made themselves look better financially by altering financial statements. Corporate Social Responsibility and the Sarbanes-Oxley Act of 2002 (SOX) come into play in this scenario.

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(The Costs and Benefits of Sarbanes-Oxley, 2014,

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They have produced a flood of various regulatory and legislative responses. Along with the Sarbanes-Oxley Act of 2002 and other similar regulations issued by the SEC now the New York Stock Exchange and the NASD both compel corporate CEOs and CFOs to certify the accuracy of financial statements filed with the SEC. This requires listed companies to genuinely adopt corporate governance guidelines or codes of ethics which specifically address the conduct of senior management, directors or officers. It forbids corporations to extend unnecessary credit to their directors or officers and also provides for forfeiture of profits and bonuses from sale of company stock if in case restatements have been made solely as a result of “misconduct” in financial reporting.

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