Week 5: Sarbanes-Oxley Act (SOX) Summary
10 June 2013
The Sarbanes-Oxley Act, also known as SOX, is a federal law that requires publicly traded companies to individually certify the accuracy of their financial information. The law was enacted as a reaction to corporate accounting scandals that caused investors to lose billions of dollars. SOX was passed in 2002 and required senior managers to certify that their reported financial statement was accurate. SOX also required companies to establish internal controls and reporting methods. Recent Accounting Scandals
Investors, creditors, shareholders, and others that use financial records to make sound business decisions have always relied on corporations to report their financial information accurately. Unfortunately, there are unscrupulous individuals of every type and this became unquestionably evident in the accounting world. According to Lynn Turner, former chief accountant at the SEC, “Starting in the 1990s, there was a spate of corporate fraud and fraudulent accounting statements at Sunbeam, Waste Management, Rite-Aid and some others even before you got to the gargantuan cases in the early 2000s involving Enron, WorldCom, Adelphia, Qwest and Global Crossing,” (Sweeney, 2012, para. 13). These scandals mainly involved the reporting of inflated and/or inaccurate financial records, misusing or misdirecting funds, or hiding debt to make companies appear more profitable. Enron was by far the largest, and still best known, of the early accounting scandals. This probably has a lot to do with the fact that Arthur Anderson, at the time one of the top five global accounting firms, was initially implicated as well. U.S. Government officials were initially slow to react and the focus was more on penalties for...
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