Sarbanes Oxley Act Research Paper

Topics: Internal control, Enron, Sarbanes–Oxley Act Pages: 6 (1794 words) Published: March 31, 2014
Sarbanes Oxley Act
Research Project
Brielle Lewis
MBA 315
March 6, 2014

I. Abstract
The purpose of the Sarbanes-Oxley Act is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law, and for other purposes. (Lander, 2004) The Act created new standards for public companies and accounting firms to abide by. After multiple business failures due to fraudulent activities and embezzlement at companies such as Enron Sarbanes and Oxley recognized a need for the revamping of our financial systems laws, rules and regulations. Thus, the Sarbanes-Oxley Act was born. II. Background/Purpose

The Sarbanes Oxley Act was signed into law on July 30, 2002 by then President George W. Bush. After major scandals involving multiple large firms embezzling funds, two Senators took on the task of revamping the financial system criteria to the laws in place currently. Senator Paul Sarbanes was a Democrat representing the state of Maryland in the United States Senate for thirty years. In 2002, he was the Senate sponsor of the Sarbanes Oxley Act which was unanimously passed 99-0 in the 100-member Senate. Michael Oxley was a Republican representing the state of Ohio in the House of Representatives, while a member Oxley served as the chairman of the Committee of Financial Services. Oxley was the House of Representatives sponsor of the Sarbanes-Oxley Act which passed overwhelmingly with a 423-3 vote in 2002. After the Act was put into law both retired from their positions. (Institute, 2010) The Sarbanes- Oxley Act was established to revitalize investor’s belief that the financial market is a sound body and uncorrupt. The Act focuses primarily on large public firms in light of failing corporate giants such as Enron, which incurred over 1.2 billion dollars in debt and had to file bankrupt. Looking deeper into the Enron scandal, the company created subsidiary organizations (that were named after Star War characters) to hide its financial dismay and declining financial status. As a result of these careless gestures stakeholders for Enron suffered juristically, their stock value plummeted and anyone with an investment in Enron lost big time. The corporate level executives were aware of this upcoming judgment day and failed to report to their investors or employees. Enron’s stock price peaked at $90 per share which raised flags about there being no supporting evidence behinds these claims of financial superiority. First, Forbes released an article questioning the stock prices without evidence and then Vice President of Corporate Development blew the whistle and exposed Enron and all of its upper managements wrong doing. Parties involved lost everything, but the major players were penalized by fines or jail time. (Kadlec, 2002)The Sarbanes-Oxley Act was put in place to control the public dismay along with preventing this massive injustice to Americans and our financial system from happening in the future. III. Economic Impact

Our economy has become increasingly complex and is expanding beyond our country’s creators imagined. Our financial system cannot function properly without the guidelines put in place by the Sarbanes-Oxley Act, it’s a wonder our economy has functioned until its creation. There is no telling what amount of fraud or embezzlement has taken place since the creation of our country’s financial structure without these guidelines. Accounting principles set in place by the Sarbanes-Oxley Act maintain the credibility of the accounting profession and financial system as a whole; it serves as a checks and balances mechanism. The biggest change in result of SOX was the creation of the Public Company Oversight Board which provides oversight for auditors of public companies establishes auditing and quality control standards for public company audits and performs inspections of the quality controls at audit firms performing those audits. (Arens, Elder, & Beasley, 2013) Another...

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