Acc291Individual Paper
The Effects of Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 (SOX) was created in response to the series of misleading and fraudulent activities of publicly traded big business’s in the 1990s. During this time, multiple large publicly-traded businesses increased their stock prices by “publishing false or deceptive financial statements” (Lasher, 2008, p. 187). The most publicly charged company was Enron, which was then followed by Xerox, WorldCom and Global Crossing. This resulted in millions of dollars of stock market value disappearing in what seemed to be overnight. It is in response to these events that Congress drafted and passed the Sarbanes-Oxley Act of 2002.
The biggest way that SOX impacted financial reporting is that it ended self-regulation of the public accounting industry. SOX achieved this by establishing a independent, non-profit organization called the Public Company Accounting Oversight Board (PCAOB). The PCAOB is given authority by the Securities Exchange Commission (SEC) to regulate and enforce the regulations and provisions of the accounting industry established by SOX. The mission of the PCAOB is to ““protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports” (PCAOB, Our Mission). Under the regulations of SOX and the PCAOB, it’s now required for all accounting firms to be registered. This makes it illegal for an unregistered firm to provide auditing services for publicly-traded companies. A few of the large roles of the PCAOB are to perform investigations of questionable accounting practices, hold disciplinary hearings, and to impose sanctions upon firms and individuals whose auditors are caught letting wrongdoings go unnoticed (Lasher, 2008, p. 190-191). Another way that SOX seeks to restore the integrity of financial statements is by removing a conflict of interest that existed during the 1990s. This conflict of interest existed when accounting firms that
The Sarbanes-Oxley Act of 2002 (SOX) was created in response to the series of misleading and fraudulent activities of publicly traded big business’s in the 1990s. During this time, multiple large publicly-traded businesses increased their stock prices by “publishing false or deceptive financial statements” (Lasher, 2008, p. 187). The most publicly charged company was Enron, which was then followed by Xerox, WorldCom and Global Crossing. This resulted in millions of dollars of stock market value disappearing in what seemed to be overnight. It is in response to these events that Congress drafted and passed the Sarbanes-Oxley Act of 2002.
The biggest way that SOX impacted financial reporting is that it ended self-regulation of the public accounting industry. SOX achieved this by establishing a independent, non-profit organization called the Public Company Accounting Oversight Board (PCAOB). The PCAOB is given authority by the Securities Exchange Commission (SEC) to regulate and enforce the regulations and provisions of the accounting industry established by SOX. The mission of the PCAOB is to ““protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports” (PCAOB, Our Mission). Under the regulations of SOX and the PCAOB, it’s now required for all accounting firms to be registered. This makes it illegal for an unregistered firm to provide auditing services for publicly-traded companies. A few of the large roles of the PCAOB are to perform investigations of questionable accounting practices, hold disciplinary hearings, and to impose sanctions upon firms and individuals whose auditors are caught letting wrongdoings go unnoticed (Lasher, 2008, p. 190-191). Another way that SOX seeks to restore the integrity of financial statements is by removing a conflict of interest that existed during the 1990s. This conflict of interest existed when accounting firms that
References: Lasher, William R. (2008). Practical Financial Management (5th ed.). Thomson South-Western. Public Company Accounting Oversight Board (PCAOB). (2012) Our Mission. Retrieved from http://pcaobus.org/About/History/Pages/default.aspx