Shawn J. Jones
Professor Alexandra Silva
June 05, 2011
Adoption of the Sarbanes-Oxley Act of 2002
1. Prior to 2002, the U.S. government had very little oversight of the financial practices and corporate governance of public companies and accounting firms. Corporate investors, to include banks, and public company employees took for granted that public companies they invested in or worked for operated ethically in regards to their financial practices. However, this blind faith offered little protection and had devastating consequences for those investors and employees of such powerhouse companies like Enron and WorldCom that went bankrupt without ever publicizing financial hard times. How could this ever happen? According to Horngren, Harrison Jr., and Oliver (2010), both Enron and WorldCom overstated profits, but WorldCom took it a step further by reporting expenses as assets (p. 380). Almost overnight, lives were ruined and the business community shaken; “the Enron and WorldCom accounting scandals rocked the United States” (Horngren, Harrison Jr., & Oliver, 2010, p. 380). Without hesitation and in response to public outburst, the Sarbanes-Oxley Act (SOX) of 2002 was born. Senator Paul Sarbanes and Representative Michael Oxley acted upon the need to combat fraudulent accounting practices by enhancing standards for all U.S. public company boards, management, and public accounting firms. The Sarbanes-Oxley Act of 2002 consists of eleven titles: Title I – Public Company Accounting Oversight Board; Title II – Auditor Independence; Title III – Corporate Responsibility; Title IV – Enhanced Financial Disclosures; Title V – Analyst Conflicts of Interests; Title VI – Commission Resources and Authority; Title VII – Studies and Reports; Title VIII – Corporate and Criminal Fraud Accountability; Title IX – White-Collar Crime and Penalty Enhancements; Title X –...