The Sarbanes Oxley Act of 2002

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The Sarbanes Oxley Act of 2002
William H. Roberson Jr.
Liberty University

It is often said that “money is the root of all evil”, and that is why GOD references money more times in the Bible than almost any other topic. He knows the desires of our hearts and our inclination to misuse and covet money. We need laws in place to protect us from ourselves. As accountants we have an obligation to act with honesty and integrity and as good stewards with the resources God has entrusted to us. The law officially named, “The Public Company Accounting Reform and Investor Protection Act”, was passed into law in 2002 in wake of the numerous corporate scandals that rocked our financial markets. One in particular was the Enron scandal, which before its collapse; Enron was thought of as one of the best companies in the United States. However, it failed to follow Generally Accepted Accounting Practices (GAAP) from as far back as 1997 through 2001. When the company suddenly collapsed in the latter part of 2001, it lost tens of billions of dollars of its shareholders money (Jickling 2003). The controls which were supposedly in place, neither internal nor external, did not uncover the financial masquerade. Because of the many corporate and accounting scandals to astonish the U.S. marketplace and its investor, shareholders organized and protested for tougher laws that required a greater degree of corporate accountability. The act is commonly referred to as the Sarbanes-Oxley Act (SOX), named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main sponsors. SOX is intended to raise the bar for integrity and competence for publicly traded companies and also to promote a greater degree of accountability within these companies. The act changed corporate governance, including the responsibilities of directors and officers, the regulation of accounting firms that audit public companies, corporate reporting and enforcement. It is organized into eleven categories, called “titles”. The first being the Public Company Accounting Oversight Board (PACOB), second, Auditors Independence, then, Corporate Responsibility, Enhanced Financial Disclosures, Analyst Conflicts of Interest, Commission Resources and Accountability, Supporting Studies and Reports, Corporate and Criminal Fraud Accountability Document preservation (Whistle-Blower Protection), White-Collar crime penalty, Corporate Tax Returns and Corporate Fraud Accountability. Title I of the Act establishes the Public Company Accounting Oversight Board (PCAOB). It is an independent, non-governmental board that oversees the audits of publicly traded companies. The purpose was designed to protect the interest of the investors and to promote public confidence and transparency in the independent audit process. The powers of the PCAOB are to register public accounting firms that prepare audit reports for issuers; establish "auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports; and conduct inspections, investigations and disciplinary proceedings of, and take enforcement action against, public accounting firms (Clearly 2003). Titles II of the act have nine sections. It sets the standard in which the auditors must remain independent to limit their conflicts of interest. Under these sections the auditors have stricter requirements of reporting, they must rotate jobs and they are not allowed to perform other services to the same company they are auditing. Also, as stated in Title I the auditing company must be registered with the PCAOB to perform acceptable audits. Title III of this act speaks to the individual responsibility of the corporate leaders. Management must certify that the financial statements do not contain any material omissions or untrue statements and those they represent fairly the financial condition of the company. And that all of the internal controls are and have been operating...
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