Sarbanes-Oxley Act Revealing Corruption at Wal-Mart

Topics: Corporate governance, Enron, Business ethics Pages: 5 (1852 words) Published: November 7, 2012
MGMT 533 Federal Regulations, Ethics and the Legal System| Sarbanes-Oxley Act: Revealing Corruption at Wal-Mart
Ethics in Action|


In July 2002, a corporate reform bill was passed into United States Federal law by the U.S. Senate and the U.S. House of Representatives. This legislation introduced new and amended ethical standards regarding financial practice and corporate governance for all publicly traded U.S. companies, as well as for management and accounting organizations. U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley spearheaded the Sarbanes-Oxley (SOX) Act (Pub. L. 107-204) (Sarbanes & Oxley, 2002). This was originally known as “Public Company Accounting Reform and Investor Protection Act” (S. 2673) (Sarbanes, 2002) in the senate, and “Corporate and Auditing Accountability and Responsibility Act” (H.R. 3763) (Oxley, 2002) in the House of Representatives.

The U.S. House of Representatives approved the act with a vote of 423 in favor, 3 opposed, and 8 abstaining, while the U.S. Senate approved with a vote of 99 in favor and only 1 abstaining (Sarbanes & Oxley, 2002). The act was signed into federal law by President George W. Bush on July 30, 2002. The President adamantly vowed for stiffer punishments to corporate offenders. Mr. Bush declared that this law meant, "No more easy money for corporate criminals, just hard time”. According to Bush, SOX was, “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.” His message to corporate business was clear, “The era of low standards and false profits is over. No boardroom in America is above or beyond the law" (Bumiller, 2002). This law was just the beginning of the complete overhaul of corporate fraud, securities and accounting practices. It generated governing panels with fact-finding and prosecution powers to watch over the accounting industry and penalize corrupt auditors. New standards were established for prosecuting ethics violations, and comprehensive protection for corporate whistle-blowers was instituted. As a result, long term prison sentences and hefty fines were put in place to discourage corporate executives from defrauding their investors. The Sarbanes-Oxley Act was formally enacted as a result of a number of major corporate and accounting scandals, including those involving Enron, Peregrine Systems, WorldCom, and Lehman Brothers. These corporations ultimately lost billions of investors’ dollars from fraud and misrepresenting financial statements, resulting in a devastating decline in company share prices and ultimately bankruptcy. Due to the ethical and financial misconduct by executive senior management in these companies, the legislation requires any publicly owned businesses to disclose the fundamental business principles or values under which it operates. These principles, or code of ethics, are required to be disclosed by all public companies, stating the conduct or governing rules by which directors, officers, and employees shall operate. SOX is comprised of eleven sections or titles, these sections cover a multitude of requirements, ranging from criminal penalties and executive management responsibilities to establishing an oversight board by the Securities and Exchange Commission (SEC). These titles restrict or establish requirements for companies to follow. The most prominent title governs filing financial reports with the SEC. The report needs to include an internal control report declaring that the administration is responsible for internal control structure and procedures with reporting financial documents. The act requires the chief executive officer (CEO) and the chief financial officer (CFO) to sign all financial documents that will be filed with the SEC, as well as annual federal income tax returns ultimately stating they contain true statements and are free from material errors (Welytok, 2002). Under SOX, companies must report if...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Sarbanes-Oxley Act of 2002 Essay
  • The Sarbanes–Oxley Act Essay
  • Sarbanes Oxley Act of 2002 Essay
  • Sarbanes-Oxley Act of 202 Essay
  • Sarbanes-Oxley Act paper
  • Sarbanes-Oxley Act Sarbanes-Oxley Act Essay
  • Sarbanes-Oxley Act Essay
  • Sarbanes-Oxley Act of 2002 Essay

Become a StudyMode Member

Sign Up - It's Free