Sox Act of 2002

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Sarbanes Oxley Act of 2002
Daniel Alvalle
BUS 670 Legal Environment
Instructor: Peter McCann
7/29/2013

If you were an investor would you want your money protected? Would you be skeptical about investing in companies since the securities fraud scandals that have happened recently? The answer is most likely, “yes”, to a certain degree. With the news about unethical business practices and companies not following regulatory guidelines, it is difficult to ignore the risk that is involved with trusting someone else with your investment. But there is an answer to help protect companies and shareholder, and it comes in the form of a regulatory organization that was put in place in 2002. That was put in place as a direct response to the corporate scandals of Enron and other scandals that followed, and was also put in place to help restore confidence in the financial market. SOX-Applies only to US companies on the US exchange, and is an Act put in place in 2002 to mandate all publicly traded corporations to maintain adequate internal control. SOX basically make sure that all US publicly traded corporation do what is in the best interest to protect the investment of stockholders. SOX-Sarbanes-Oxley Act of 2002 is an ACT that was put in place where all publicly traded U.S. corporations are required to follow certain guidelines and requirements. Basically, these systems were put in place because of securities fraud issues that came to light in the early 2000’s, and are put in place to help minimize and eliminate fraud, to ensure accurate record keeping and reporting as well as to protect investors (Kimmel, Paul D. (2011-06-28). One key component is a Code of ethics requirement which provides a guideline for internal corporate governance. These standards outline standards for corporate Officers, Directors, employees, and even its internal auditors.

Another key component and mandatory requirement of SOX is for the company to hire an outside auditor, and that there be a rotation of auditors within that firm to conduct the audits. Some professionals are stating that is should be necessary to rotate auditing firms rather than auditors within a firm for extra security. Ken Lay, once CEO of Enron, is known to possibly have the greatest impact on scrutiny and legalization of business ethics. His unethical behaviors over the ten years prior to the collapse of Enron and fraud conviction were a major concern. Lay was convicted in 2001 of conspiracy and securities and wire fraud, as well as making false statements and bank fraud (Ferrell, O. O., & Ferrell, L., 2011). Scott D. Sullivan and WorldCom Inc. is a CFO who will stand trial for his part in defrauding 11 billion dollars from investors through false statements. Four other former executives pleading guilty for related charges, and their boss was also charged with false information to the SEC. HealthSouth Corp. CEO Richard Scrushy; CEO Jeff Weitzen, CFO John Todd, and Controller Robert Manzaof were all involved in the accounting scandal at Gateway Inc (Ferrell, O. O., & Ferrell, L. (2011). Above are just a few examples of the importance of having a regulatory system such as SOX put in place. The SEC and GAAP are similar regulatory systems that function on different levels and have different authoritative capabilities, but we will only discuss SOX for the sake of this paper. When the Act was first enacted James Glassman, a resident of the American Enterprise Institute, said that he felt that the Act will have several effects on the industry. He said it would

raise compliance cost and other expenses, Deter innovation and risk taking, increase lawsuits, and distract CEO’s and other executives from important tasks (Lonsdale J.T. (2002). 10 years later there is still criticism as to the success of SOX. Some say that SOX has not done enough to change the auditing and accounting industry, and has not addressed the...
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