The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002
Jayne Diaz
BUS 591: Financial Accounting & Analysis
Professor Susan Ayers
March 26, 2012 The Sarbanes-Oxley Act of 2002
Prior to 2002, there was very little oversight of accounting procedures. Auditors were not always independent and corporate government procedures and disclosure provisions were inadequate. Sometimes, executive compensation was tied to the stock of the company which created an incentive to manipulate the stock price by using fraudulent accounting practices to make it look like companies were making more money than they actually were. The Sarbanes-Oxley Act of 2002 was introduced because of the collapse of several major corporations due to these practices. This paper will discuss the main objective of The Sarbanes-Oxley Act of 2002, and point out key components to the act. It will also go through a few of the different criticisms from various individuals that have surrounded SOX since it was enacted. The paper will also talk about the positive and negative economic consequences of the act. Lastly, there will be a discussion on whether or not SOX has succeeded in achieving its goals and has become successful in the past decade.
Main Objectives
The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act, was a bill written:
To improve quality and transparency in financial reporting and independent audits and accounting services for public companies, to create a Public Company Accounting Oversight Board, to enhance the standard setting process for accounting practices, to strengthen the independence of firms that audit public companies, to increase corporate responsibility and the usefulness of corporate financial disclosure, to protect the objectivity and independence of securities analysts, to improve Securities and Exchange Commission resources and oversight, and for other purposes (Sarbanes et al., 2002, p. 1-2).
Prior to the act,
Jayne Diaz
BUS 591: Financial Accounting & Analysis
Professor Susan Ayers
March 26, 2012 The Sarbanes-Oxley Act of 2002
Prior to 2002, there was very little oversight of accounting procedures. Auditors were not always independent and corporate government procedures and disclosure provisions were inadequate. Sometimes, executive compensation was tied to the stock of the company which created an incentive to manipulate the stock price by using fraudulent accounting practices to make it look like companies were making more money than they actually were. The Sarbanes-Oxley Act of 2002 was introduced because of the collapse of several major corporations due to these practices. This paper will discuss the main objective of The Sarbanes-Oxley Act of 2002, and point out key components to the act. It will also go through a few of the different criticisms from various individuals that have surrounded SOX since it was enacted. The paper will also talk about the positive and negative economic consequences of the act. Lastly, there will be a discussion on whether or not SOX has succeeded in achieving its goals and has become successful in the past decade.
Main Objectives
The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act, was a bill written:
To improve quality and transparency in financial reporting and independent audits and accounting services for public companies, to create a Public Company Accounting Oversight Board, to enhance the standard setting process for accounting practices, to strengthen the independence of firms that audit public companies, to increase corporate responsibility and the usefulness of corporate financial disclosure, to protect the objectivity and independence of securities analysts, to improve Securities and Exchange Commission resources and oversight, and for other purposes (Sarbanes et al., 2002, p. 1-2).
Prior to the act,
References: 107th Congress. (2002). Public law 107-204 - July 30, 2002. Retrieved March 24, 2012, from: http://pcaobus.org/About/History/Documents/PDFs/Sarbanes_Oxley_Act_of_2002.pdf. Benoit, R Castellon, M. (2011). Sarbanes-Oxley, eight years on. Retrieved on March 25, 2012, from: http://www.window.state.tx.us/comptrol/fnotes/fn1105/oxley.html. Gilbertson, D. & Herron, T. (2009) Greenspan, A. (2005). Remarks by Chairman Alan Greenspan. Retrieved March 26, 2012, from: http://www.federalreserve.gov/boarddocs/speeches/2005/20050515/default.htm. Greifeld, B. (2011). Sarbox and immigration reform for jobs. Wall Street Journal (Eastern Edition), p. A.21. Retrieved March 25, 2012, from ABI/INFORM Global. (Document ID: 2474755741). Grill, B. (2011). The Sarbanes-Oxley Act; Title IX-XI. Retrieved March 24, 2012, from: http://www.gaebler.com/The-Sarbanes-Oxley-Act-Title-IX-XI.htm. Kaserer, C., Mettler, A., & Obernberger, S. (2011) Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making. (ed. 6). Danvers, MA: John Wiley & Sons, Inc. McCauley Parles, L., O 'Sullivan, S Millar, J. A., & Bowen, B. W. (2011). Small and large firm regulatory costs: the case of the Sarbanes-Oxley Act. Corporate Governance, 11(2), 161-170. Retrieved March 26, 2012, from ABI/INFORM Global. (Document ID: 2308937251). Soxlaw. (2003). A guide to Sarbanes-Oxley legislation. Retrieved March 24, 2012, from: http://www.soxlaw.com/s802.htm. US Legal