sarbanes-oxley act 2002

Running head: SARBANES-OXLEY ACT OF 2002 1

Sarbanes-Oxley Act of 2002

Gabriella Goodfield

ACC/561

October 19, 2015

Myrtle Clark

SARBANES-OXLEY ACT OF 2002 2

Sarbanes-Oxley Act of 2002Introduction

The Sarbanes-Oxley Act of 2002 is also call SOX. The purpose of the SOX is to protect

investors from fraud and other accuracy disclosures. For those who are found in committing

fraud SOX has foreseen the correct punishment Thirteen years later is the SOX effective in

avoiding fraud. Will it be effective in avoiding fraud in the future? The SOX has regulations

that regulate the environment. These regulations will be review.

SOX Background

In the years, 2001 and 2002 the largest of the US corporate accounting fraud were

committed. The most famous of the account ting fraud was Arthur Andersen and Enron.

Senator Paul Sarbanes and Representative Michael Oxley in 2002 drafted the Sarbanes-Oxley

Act 2002. The main purpose was to protect investors by improving accuracy of corporations. In

addition, the Act took away the “I did not know anything about it” from top management and

CEOs. Then making the top management and the CEOS responsible for the action of the

company.

Regulatory Environment

Regulations is an extremely important part of corporations. These regulations tells the

corporations what they can do and what they cannot do. It is these regulations that protects the

public from frauds. One way to protect the public is to have corporations to perform an audit.

The audit can be internal and external. The SOX wants the both types of audits

Corporations that are in the US today are require to preform audits. The SOX requires that

a corporate come out with their annual reports that they must report the purpose of their internal

controls. In addition, “The registered accounting firm shall, in the same report, attest to and

report on the assessment on the effectiveness of internal controls structure and procedures for


financial reporting”(sox law, n.d). This refers to an audit. The person who performs the audit is

call an auditor.

There are two types of auditors. There is the internal auditor and this auditor is an

employee, usually the accountant, of the corporation. The second type of auditor is the external

auditor.

A corporation would have an audit committee. “The Sarbanes-Oxley Act 2002 in the US

(2002) requires that all members of the audit committee be independent. Companies must

disclose whether or not the audit committee includes at least one financial expert” (lexicon, n.d).

This committee oversees and serves to check the financial statement of the corporation. The

financial is require to have the knowledge and expertise of the financial statement i.e. education.

In addition the understanding of the accounting standard and principles that are made by the

FASB, GAAP, SEC, and Sarbanes-Oxley Act 2002. According to Harvey Coustan, when he

interview audit committee members on the Section 301 requirement on selecting an external

auditor, and referring to cost “Accordingly, they thought the audit committee’s hiring the

external auditor might relieve some pressure on audit fees”( Coustan, 2004, pg. 46 para 2).

In section 802 of the Sarbanes-Oxley Act 2002 is on the “Criminal Penalties for Altering

Documents”(sox law). In this section the following is found and explain. “Fines and/ or 20 years

of imprisonment for altering, destroying, militating, concealing, falsifying records, documents or

tangible objects with intent to obstruct, impede or influence a legal investigation”(sox law, n.d).

As for the accountant who knowingly go against the requirements for the maintenance of the

audit or review papers, there is imprisonment up to 10 years.

SOX Effectiveness


SOX effectiveness is seen when the CEOs and/ or officers of the corporation is require, by

the SOX, to review the reports and financial statements. These officers are now more active in

the review the reports. The officers have make sure that there is no misleading information, false

statements, or missing information. Ensure that the financial statement truly present the actual

financial conditions in the company. The officers are responsible for the internal controls and

evaluate them. This is just a few item in Section 302. Where is the effectiveness? The officers

would actual do that is require by the Section 302. In fact, fraud in major corporations is down

since the SOX has been in act.

SOX and the SEC by providing the whistleblower a way to inform the SEC what is going.

Whistle Blowers still fear that they might be reveal but the government is working on ways that

can provide more protection.

The effectiveness of the SOX is little to none when it comes to the small business. The act

itself does not provide provisions for the size of the company. The costs is an example. The audit

is costly and most small business have a hard time paying for the audit. According to Curtis

Nicolls “Indeed, some small companies are reportedly going privately to avoid SOX’s reporting

requirement” (Nicolls, 2014).

SOX effectiveness in the future

SOX effectiveness depends on if they penalties are given to the companies that did respect

the SOX regulations. Meaning that not all, corporations that are caught are given penalties. In

order to be more effective in the future SOX needs to be revise and have new regulations. As

for small companies regulations that the small companies can meet.

Each company, corporations and small companies, should be require to have an ethical

code. In these codes, the company should state which ethical and not ethical in doing the


financial reporting. The SOX should provide what should be in the ethical codes and what are

the penalties.

In the future, the cost to do the audit that the SOX wants would be expensive for the small

businesses. In the case, the small companies would not do the audit as the SOX regulation

prescribe to do. These small companies would find loops holes to use to get away.

Has the SOX failed?

From 2002 until 2015 the SOX has work but needs to improve to keep up with the

changing times. If the improvement like changing the penalties and regulations does not come

about in the future then the SOX is heading for failure. Additional regulation are needed for the

years that have economic crisis.

Conclusion

The Sarbanes-Oxley Act 2002 is an excellent act that has help to clean up a bit the

corporations and companies of America. There is a need to improve in order for the SOCX to

continue to be effective


References

Clayton, B. (2013). Is Sarbanes-Oxley a Failing Law? Retrieved from

http://uculr.com/articles/2013/6/30is-sarbanes-oxley-a-failing-law

Coustan, H., Leinicke, L. M., Rexroad, W. M., & Ostrosky, J. A. (2004). Sarbanes-Oxley: What

it means to the market place. Journal of Accountancy, 2(2), n.d.

Flint, A. J. (2005). Solutions to corruption in the auditing profession. Review of Human Factor

Studies, 11(1), 133-129.

Lexicon. (n.d). Definition of Audit Committee. Retrieved from http://www.lexicon.ft.com

Maleske, M. (2012). 8 Ways SOX changed corporate governace. Retrieved from

http://www.insidecounsel.com

Montana, J. (2007). The Sarbanes-Oxley: Five years later. Information Management Journal,

41(6), 48-53.

Nicholls, C. (2014). Is the Sarbanes-Oxley working? Retrieved from

http://www.insurancenewsnet.com

SOX Law. (n.d). Sarbanes-Oxley Act Section 404 and 802. Retrieved from

http://www.soxlaw.com

SOX Online. (n.d). Sarbanes-Oxley Essential Information. Retrieved from http://www.sox-

online.com

Sweeney, P. (2007). Will new regulations deter corporate fraud? Financial Executive, 27(1), 54-

57.