Federal Law Research

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Qianran Shen
MGMT 330
Prof. GaryPatterson
Research Project

The Sarbanes–Oxley Act of 2002

INTRODUCTION
The Sarbanes–Oxley Act of 2002 is also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). As a result of SOX, top management must now individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Also, SOX increased the independence of the outside auditors who review the accuracy of corporate financial statements, and increased the oversight role of boards of directors.

LEGISLATION
The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the law. Harvey Pitt, the 26th chairman of the SEC, led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. The nonprofit arm of Financial Executives International (FEI), Financial Executives Research Foundation (FERF), completed extensive research studies to help support the foundations of the act.

RATIONALE
The act was approved by the House by a vote of 423 in favor, 3 opposed, and 8 abstaining and by the Senate with a vote of 99 in favor, 1 abstaining. President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt. The era of low standards and false profits is over; no boardroom in America is above or beyond the law."[2]

In response to the perception that stricter financial governance laws are needed, SOX-type laws have been subsequently enacted in Japan, Germany, France, Italy, Australia, India, South Africa, and Turkey.

SUBSEQUENT CASE ANALYSIS

Case one
FREE ENTERPRISE FUND and BECKSTEAD AND WATTS, LLP, Petitioners v. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD et al.
No. 08-861
SUPREME COURT OF THE UNITED STATES
Facts: Petitioner accounting firm and a nonprofit organization sued respondent Public Company Accounting Oversight Board and its members, seeking a declaratory judgment and injunctive relief that the Sarbanes-Oxley Act contravened the separation of powers and the Appointments Clause. The U.S. Court of Appeals for the District of Columbia Circuit affirmed the summary judgment granted in favor of the Board and its members. Certiorari was granted.

Issue:The judgment of the United States Court of Appeals for the District of Columbia Circuit was affirmed in part as to the issue of jurisdiction and was reversed in part as to the constitutionality of the removal restrictions for Board members. .

Law:15 U.S.C.S. § 78y did not strip the district court of jurisdiction over the claims.

Analysis: In its typical rush to finish its term by July 4, the U.S. Supreme Court just released an opinion in the case challenging the constitutionality...
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