Major Sections of SOX5
After SOX: What has Sarbanes-Oxley Accomplished & Issues that Remain7
The Sarbanes-Oxley Act was signed into law in 2002 by President Bush. Sarbanes- Oxley came to be because of corporate level accounting scandals that had then, recently occurred. The most common of these scandals include: Adelphia, Enron, Peregrine Systems, Tyco and, WorldCom. This act “introduced major changes to the regulation of financial practice and corporate governance.” Enron
The Enron Scandal is one of many that prompted the obvious need for reform of accounting practices. It began in November 1997 when the company bought stake in another company to create a sub company of Enron. The new company, Chewco, was run by an Enron officer who enabled Enron to run a series of transactions through Chewco and ultimately, funnel debt from one company to another, even though they were both Enron. By 2001 “CEO Jeffery Skilling resigns, becoming the sixth senior executive to leave in a year.” In October, Arthur Andersen’s legal counsel advised auditors of Enron to destroy “all but the most basic documents2.” So, the cover up began. Arthur Andersen was once amongst the “Big 5” accounting firms and the provided tax, audit and consulting services to corporations like Enron. Their reputation plummeted after they were admittedly aware of “possible illegal acts” committed by Enron and ultimately, Arthur Anderson was dissolved. Sarbanes-Oxley Act
Enron and other scandals cost investors billions of dollars. Stock prices were at all time lows and the people were beginning to lose faith in corporate leaders. Something had to be done to restore faith and tighten standards. Sarbanes-Oxley was named after Senator Paul Sarbanes and Representative Michael Oxley. Oxley introduced the act to the House of Representatives calling it the “Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002” on February 14, 2002. With minor changes to the name at the Act itself occurring over the span of a few months, Sarbanes-Oxley was officially signed into law on July 30, 2002 by President George W. Bush. Bush called the legislation “the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt. The era of low standards and false profits is over; no boardroom in America is above or beyond the law.” The turnaround of this act was very quick. It was obvious that something needed to be done and it needed to occur quickly. 11 Titles
Sarbanes-Oxley is comprised of 11 Titles, each with subsidiary sections. The eleven titles each focus on one main topic and the changes that are implemented by Sarbanes-Oxley under their heading. The names of the titles are as follows: 1. Public Company Accounting Oversight Board (PCAOB) - this section establishes and provides the need for independent auditors. So now, a corporation could not solely publish audits that were conducted internally. 2. Auditor Independence – establishes the standards that need to be followed when conducting an external audit in order to eliminate conflicts of interest. 3. Corporate Responsibility – Title 3 states that senior executives must take individual responsibility for the lawfulness and correctness of their financial records. The hope here is that higher up executives will not turn the other way when fraudulent activity occurs for fear that they could be prosecuted on a personal level. 4. Enhanced Financial Disclosures – In this title, the new reporting requirements are laid out for corporations. The new requirements are much more thorough and leave little room for leaving out relevant information. 5. Analyst Conflicts of Interest – This is the shortest title of them all and aims to help...