ACCOUNTING FOR NON-ACCOUNTING MAJORS
The Sarbanes-Oxley Act was enacted to establish new or enhanced standards for U.S. public company boards, management, and public accounting firms. It is also known as the “Public Company Accounting Reform and the Investor Protection Act of 2002. It was created by Senator Paul Sarbanes (D-Maryland) and US Congressman Michael Oxley (R-Ohio) and was signed into law on July 30th 2002. This has been the most dynamic securities legislations since the creation of the SEC in 1933 and 1934. The purpose of SOX is to establish new or enhanced standards for U.S. public company boards, management and public accounting firms in an effort to do away with bad accounting procedures that led to the collapse and investigations of several large corporations back in the late 1990’s to early 2000’s. (PKWY, n.d.) The public outrage that occurred as a result of the financial reporting scandals led congress to pass this Act in order to regulate audits of the public sector accounting procedures and prevent any further occurrence of false financial reports. Companies that are not using the standard accounting procedures have sometimes been led to using methods that mislead investors about the financial aspect or health of the company. Such practices have ranged from being plain unethical to illegal. (PKWY, n.d.) This led to the passing of the Sarbanes-Oxley Act of2002 in an effort to encourage executives and the Board of Directors to double check financial records as well as dissuade the intentional misrepresentation of the company financial status. (Addison-Hewitt Associates , 2013) It was also passed because the misrepresentation allowed loans from major banks to companies that would have been looked upon as risky and hurt the bank investors. (Addison-Hewitt Associates , 2013) When the misrepresented financial reports caused stockholders to make what looked like a good investment it resulted in the loss of large sums of money. Another reason the Act was passed was to alleviate auditor conflict of interests. (Authenticated U.S.Government Information/Conference Report, 2013) If an auditor was also a consultant than sometimes using proper auditing procedures could damage the relationship under the consulting agreement and the bad accounting was left unchecked. (Addison-Hewitt Associates , 2013) This is what led to the downfall of many large companies like Enron. The goals set forth by Sox where to regain the public confidences while improving the corporate governance and increase executive responsibility. They also wanted to increase the efforts that would prevent, detect, investigate and remediate fraud and misconduct. There are 11 mandates in the Act. .
Title I – Public Company Accounting Oversight Board
This board was created as a non-profit organization to oversee audits of public companies. They are under the authority of the SEC and consist of 5 appointed members with a maximum of 2 CPA’s. Their duties include the registering of existing public accounting firms that audit for publicly traded companies, audit the auditors, establish and amend rules and standards and to try and penalize those firms who fail to comply with the rules. (PKWY, n.d.) Title II – Auditor Independence
Prohibits registered public accounting firms from performing non-audit services for companies they audit in an effort to prevent conflict of interest. Title III – Corporate Responsibility
CEOs and CFOs must certify accuracy. They must forfeit any bonuses and profits from the company if they misrepresent information. Title IV – Enhanced Financial Disclosures
This title forbids most personal loans to chief executives. It mandates the disclosure of the code of ethics for the senior financial officers and the disclosure of the members of the company audit committee. It states that at least one financial expert be on the...
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