History of Sox

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History of Sarbanes Oxley and the Reasons for Enactment

Virginia Knight
Student ID: 6892460166

Accounting Capstone
Senior Seminar in Accounting
ACC 499006016Spring 2009

Submitted to: Professor Tee Thein
June 19, 2009

Abstract:

In 2002 the Sarbanes-Oxley Act was passed. This is a mandatory act that all organizations, large and small, must comply with. This legislation introduced major changes to the regulation of financial practice and corporate governance. There are eleven titles to the Sarbanes-Oxley Act. The act is named after its main architect, Representative Michael Oxley and Senator Paul Sarbanes. Former President Bush is quoted saying that it is intended to “deter and punish corporate and accounting fraud and corruption, ensure justice for wrongdoers, and protect the interest of workers and shareholders”.

Table of Contents:
Page
Abstract. . . . . . . . . . . . . . . . . . . .. .2
Chapter 1 . . . . . . . . . . . . . . . . . . . . .5
Introduction. . . . . . . . . . . . . . . . .5
Chapter 2. . . . . . . . . . . . . . . . . . . . . . 7
Eleven Titles of SOX . . . . . . . . . . . . . . 7
1. PCAOB . . . . . . . . . . . . . . . . . . . . . . 7
2. Auditor Independence. . . . . . . . . . . . . . . 8
3. Corporate Responsibility . . . . . . . . . . . . . 8
4. Enhanced Financial Disclosures . . . . . . . . . . 9
5. Analyst Conflicts of Interest . . . . . . . . . . . 9
6. Commission Resources and Authority . . . . . . . . . 10
7. Studies and Reports . . . . . . . . . . . . . . . . 10
8. Corporate and Criminal Fraud Accountability . . . . 10
9. White Collar Crime Penalty Enhancement . . . . . . . 11
10. Corporate Tax Returns . . . . . . . . . . . . . . . 11
11. Corporate Fraud Accountability . . . . . . . . . . . 11

Chapter 3 . . . . . . . . . . . . . . . . . . . . . . 13
An Accountant’s View . . . . . . . . . . . . . . 13
Internal Control Scorecard . . . . . . . . . . . . 17
Chapter 4 . . . . . . . . . . . . . . . . . . . . . . 18
Summary and Conclusion . . . . . . . . . . . . . . 18
Research File Memorandum . . . . . . . . . . . . . . . 19
Communication Memorandum . . . . . . . . . . . . . . . 21
References . . . . . . . . . . . . . . . . . . . . . . 22

CHAPTER 1
Introduction

President George W. Bush signed the Sarbanes-Oxley Act into law on July 30, 2002. At that time he called it “the most far-reaching” business regulation reform since the days of Franklin Delano Roosevelt. The Sarbanes-Oxley Act (often shortened to SOX) was born of reaction and despair. The public and business communities were reeling from a series of high profile cases of corporate corruption and failure when congress embraced this act. SOX is legislation enacted in response to the Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices. The Securities and Exchange Commission (SEC) sets deadlines for compliance and publishes rules on the requirements. Sarbanes-Oxley does not specify how a business should store records, but rather which records should be stored and for how long. SOX was designed following the outbreak of corporate scandals and bankruptcies to restore investor confidence. It has been described as “the most sweeping and significant change in securities law since the 1930’s. SOX is a wide-ranging complex statute that amended United States securities law in significant ways”. The passage of Sarbanes-Oxley was met with criticisms and concerns; some of which has continued through the present. There have been numerous and far-reaching effects due to SOX on the accounting professions with new regulations regarding auditing and consulting. An invitation only on-line survey named Oversight Systems 2004 surveyed 222 financial executives. “Seventy-nine percent of those surveyed reported having ‘significantly stronger’ or ‘somewhat stronger’ internal...
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