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Why Is Sarbanes-Oxley Act Necessary

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The Sarbanes-Oxley Act is very necessary act put in place to help investors. The Sarbanes-Oxley Act is an act put in place in the early 2000’s by Paul Sarbanes and Michael Oxley. The act was put in place to improve corporate governance and accountability (What is Sarbanes-Oxley Act (SOX)?). The Sarbanes-Oxley act has changed the financial side of corporations. This is because it added criminal penalties for misconduct within a business or corporate and accounting scandals. Some view the act as unnecessary and costly and put American firms at a disadvantage as opposed to foreign firms, others, however, praise the idea of the act and find it to be necessary. It is mandatory that all businesses and employees follow the rules put in place by the act or face punishment such as being fired or even arrested. Sarbanes Oxley Act and Internal Control Sarbanes-Oxley Act changed the financial side …show more content…

The rules state that “public companies must keep an internal control report so that any action taken within the business may be monitored and controlled in case any illegal action is taking place.” The corporations must also “have an outside auditor to evaluate their internal control and report them on the audit report.” The act put a new body in place to “watch over the work of auditors of public companies, called the Public Company Accounting Oversight Board, or PCAOB.” Another provision of SOX is that “accounting firms are not allowed to audit public companies or offer certain consulting services for the same client.” With SOX in place, there are penalties for anyone who violates the act’s provisions. 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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The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.

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1. Dodd-Frank Act: The Dodd-Frank Act which is known in full-form as Dodd-Frank Wall Street Reform and Consumer Protection Act is a type of United States federal law which will define regulation of the financial industry within the perimeter of the federal agencies. The legislation that was defined way back in July 2010, which can avoid the significant financial crisis by defining new financial regulatory methodology which can insist clarity and authorization while defining rules for protecting the financial data of several users. The Dodd-Frank Act is adopted by most of the investment banking organizations across the world. 2.

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• Why did Congress pass the Sarbanes-Oxley Act of 2002? • How has the accounting profession changed due to

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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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Financial statements include the company’s net worth based on assets and liabilities, as well as the company’s expense, earnings and operational budget. Users may use the relevant financial statements to make decision for future plan. In the beginning of 1934, Congress created the Securities and Exchange Commission (SEC) which delegates standard setting authority to the private sector. SEC was delegated responsibilities and encouraged the private sector to set the standard as the first standard setting body for the accounting (Group 1). In 2002, the Sarbanes-Oxley Act (SOX) is passed by U.S. Congress to protect shareholders and the general public form accounting errors and fraudulent practices, and to improve the accuracy of corporate disclosure.

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587 Words | 3 Pages

These acts were created to help restore order to the very chaotic stock market. Before the crash there was little to no regulations to protect investors and control the actions of the companies being invested in to. The Securities and Exchange Commission would be able to help revive the economy by regulating the investments going into the stock market, helping restore faith in the stock market but also keeping investors careful and

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Dealers will be required to meet robust business conduct standards to lower risk and promote market integrity. Dealers will be required to meet recordkeeping and reporting requirements so that regulators can police the markets (“Dodd-Frank Act”). I personally think the Glass-Steagall Act sounds like it was more effective than the Dodd-Frank Act. Of course, there are highs and lows in the market, but to my understanding, there was not a major depression in the market the entire time the act was in place. The Glass-Steagall Act was also enacted in response to the Great Depression, so it appears as if it has a more understanding and encompassing way of regulating the market in a way

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This provision of Sarbanes-Oxley is good law. It does not represent over regulation by the government because public accounting firms should not be able to perform certain non-auditing acts for clients they also audit. The acts that audit would be done

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The securities Act of 1933 was a federal part of legislative enacted as a result of the market collapse in 1929. There were two main objective set forth by the legislative. One was to guarantee additional transparency in the financial statements so investors and stakeholders and make better decisions about their investments and secondly, establish laws against fraudulent activities and misrepresentation in the securities markets. The sale of securities was mostly governed by state laws prior to the legislative.

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Blue Sky Laws are state laws that regulate the offer and sale of financial securities to protect people. The Sarbanes Oxley Act is an important act that was passed in response to the Enron Scandal. It established a new regulatory group, PCAOB, to oversee public company auditors. PCAOB is a five-member oversight group who protects investors in U.S. securities markets. They ensure that public companies’ financial statements are audited to the

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Additionally, it led to the collapse of Arthur Andersen, one of the largest accountancy and audit firm in the world at that time and the passage of the Sarbanes-Oxely Act of 2002. Furthermore, this essay will illustrate the three key audit issues (i.e auditors independence, due diligence and true & fair view accounting) which raised during the collapse, following by discussing the relevance of the developments following Enron(i.e Sarbanes-Oxely Act) to Australian

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In 1987 The Committee of Sponsoring Organizations (COSO) which is also referred to as The Treadway Report released the Report of the National Commission on Fraudulent Financial Reporting. Later in 1992 COSO published Internal Control—Integrated Framework which gave corporations a guide to put in place effective internal control. In 2002 the Sarbanes-Oxley Act was passed requiring companies to access the effectiveness of their internal controls. In 2013 COSO released an updated version of Internal Control—Integrated Framework.

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SOX achieved this by creating the Public Company Accounting Oversight Board (PCAOB). The PCAOB is empowered by the Securities Exchange Commission (SEC) and is to enforce the regulations of the accounting industry. SOX requires for all accounting firms to be registered to issue audit reports for publicly-traded companies. The PCAOB is to perform investigations of accounting practices, and hold disciplinary hearings. The SOX Act gives integrity to financial

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This law regulates the selling of securities, an area that states had sole jurisdiction up until the stock market crash of 1929. “The legislation addressed the need for better disclosure by requiring companies to register with the [SEC].” Unfortunately, this post-Depression-era creation has also proven to be a failure. Oversight flaws by the SEC fueled the Great Recession crisis; this fact was conceded by the former chairman of the SEC, Christopher Cox. Chariman Cox has been recorded as saying that the SEC was “fundamentally flawed from the beginning.”

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With this law, violation of these procedures could result in a fine of up to $2000 and five years' imprisonment

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