Sarbanes-Oxley Act of 2002
University of Phoenix
ACC/561 Business Management
Dr. Scott Davis
April 23, 2015
This paper will attempt to describe, define, and analyze how the Sarbanes-Oxley Act of 2002 became established. The writer has presented the paper in the form of a series of questions, which will help organize the essay and to make it easy for the reader locate the material presented. Also the reader will comprehend through a real life scenario how a particular firm executive’s committed fraud by manipulating accounting principles, deceiving it’s workforce and changing the company culture. Last, one will read the writer opinion on whether if after the establishment of the SOX regulations will companies still attempt fraudulent activity in the future. Sarbanes-Oxley Act of 2002
The Sarbanes Act An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. (Investopedia,LLC., 2015) The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important sections within these are often considered to be 302, 401, 404, 409, 802, and 906. (Sarbanes-Oxley Act of 2002, 2007) Is it arbitrary to believe that companies can and have a duty to act ethically? No, it is not unreasonable to expect businesses to act ethically. Sarbanes-Oxley Act was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards. In reference to the Lehman Brothers for this paper illustration, the guiding principles most companies abide by were broken. Business should always be law abiding, honest and caring. Leadership is built on integrity and fairness in which companies’ reputation and commitment to excellence are established. How does culture for example at Lehman Brothers play apart of the fraud scandal? The most visible attribute of just how convoluted and unethical the culture had become was the willingness of senior management to redefine the organizations’ reality to fit their specific needs. Modifying balance sheets, the creation and often-used Repo 105 financial transaction and belief by senior management that the means justified the ends all contributed to create a culture devoid of ethics. The lack of accountability and transparency at the senior-most levels of the company led to a culture of invincibility and ethnicity above the law (Murphy, 2010). How did this convoluted culture contribute to the company’s collapse? At the center of the Lehman Brothers, financial collapse is a disintegration of accounting, financial, and operational controls that reflect regulated approaches to accountancy and financially sound reporting. This lack of accountability and fidelity of financial and operational controls is predicated on a core set of senior executives who increasingly chose strategies that deliberately benefited them at the expense of others. By doing this, they had intentionally created a pattern that crushed utilitarianist-based approaches to ethics, and in so doing, created a culture of unethical values and behaviors (Fernando, May, Megginson, 2012). It is often said what gets measured gets better, and in a paradoxical way, this is exactly, what happened at Lehman Brothers. Measuring just how far balance sheets and other financial instruments could be manipulated and modified to meet the firms’ specific needs with no regard of how these actions would impact their shareholders, employees or the national economy shows that these constituents were never part of the decision-making process to begin with (Murphy, 2010). With this foundation in place of no accountability and a...
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