The Sarbanes-Oxley Act
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Introduction of Sarbanes Oxley
On March 5th, 2001, Fortune magazine released an article by Bethany McLean. The theme of this article was that Enron’s stocks were overpriced. She stated that Enron’s stocks were really popular and that its numbers were really impressive. Its revenues had doubled to over $100 billion, earnings were increasing by 25% and stocks were returning over 89%. All this seemed a little too much like a fairy tale. She raised questions like ‘Where does Enron get its revenues from?’, ‘Why it was so complicated to get information from Enron?’ and so on. When asked these questions, various Enron …show more content…
Many such scandals broke out during the period of 2000-2002, WorldCom, Tyco International, Adelphia, Peregrine Systems were a few to name. These scandals resulted in many investors losing their money, some who had invested their life savings, due to stock price crashes also causing instability in the stock markets. After a series of analysis and discussions, the senate passed a bill call ‘Sarbanes Oxley Act of 2002’.
What areas did the ‘Sarbanes Oxley Act’ cover?
The Sarbanes–Oxley Act contains specific mandates and requirements for financial reporting. Like other regulatory requirements, some sections of the act are more pertinent to compliance than others. The following are the key Sarbanes-Oxley sections: Section 302, Section 401, Section 404, Section 409 and Section 802. 1. Section 302:
This section is listed under Title III of the act, and pertains to 'Corporate Responsibility for Financial Reports'. Periodic statutory financial reports are to include certifications that:
•..The..signing..officers..have..reviewed..the..report.
• The report does not contain any material untrue statements or material …show more content…
It was introduced to change that. It tightened rules for corporate audits and forced executives to certify financial statements. Over the years, a lot of corporate leaders have stated that the law is too complex and costly. But according to Mr Christopher Cox, Chairman, Securities and Exchange Commission, the ACT has been well worth the cost.
Here are a list of reasons why – * To make sure that investors could rely on financial statements, rely on audit committees that check against fraud in those financial statements, that they could be assured of more real-time disclosure, and that there would be oversight of the entire accounting profession, which the law established. * The number of private securities class action suits that are brought to rectify instances of fraud have come down over the years. This is one way of measuring that the law has brought down the number of incidences of corporate fraud. * According to Mr Cox, many companies who were initially against the law have come around now and have seen the benefits of the law in terms of costs and performance.
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Introduction of Sarbanes Oxley
On March 5th, 2001, Fortune magazine released an article by Bethany McLean. The theme of this article was that Enron’s stocks were overpriced. She stated that Enron’s stocks were really popular and that its numbers were really impressive. Its revenues had doubled to over $100 billion, earnings were increasing by 25% and stocks were returning over 89%. All this seemed a little too much like a fairy tale. She raised questions like ‘Where does Enron get its revenues from?’, ‘Why it was so complicated to get information from Enron?’ and so on. When asked these questions, various Enron …show more content…
Many such scandals broke out during the period of 2000-2002, WorldCom, Tyco International, Adelphia, Peregrine Systems were a few to name. These scandals resulted in many investors losing their money, some who had invested their life savings, due to stock price crashes also causing instability in the stock markets. After a series of analysis and discussions, the senate passed a bill call ‘Sarbanes Oxley Act of 2002’.
What areas did the ‘Sarbanes Oxley Act’ cover?
The Sarbanes–Oxley Act contains specific mandates and requirements for financial reporting. Like other regulatory requirements, some sections of the act are more pertinent to compliance than others. The following are the key Sarbanes-Oxley sections: Section 302, Section 401, Section 404, Section 409 and Section 802. 1. Section 302:
This section is listed under Title III of the act, and pertains to 'Corporate Responsibility for Financial Reports'. Periodic statutory financial reports are to include certifications that:
•..The..signing..officers..have..reviewed..the..report.
• The report does not contain any material untrue statements or material …show more content…
It was introduced to change that. It tightened rules for corporate audits and forced executives to certify financial statements. Over the years, a lot of corporate leaders have stated that the law is too complex and costly. But according to Mr Christopher Cox, Chairman, Securities and Exchange Commission, the ACT has been well worth the cost.
Here are a list of reasons why – * To make sure that investors could rely on financial statements, rely on audit committees that check against fraud in those financial statements, that they could be assured of more real-time disclosure, and that there would be oversight of the entire accounting profession, which the law established. * The number of private securities class action suits that are brought to rectify instances of fraud have come down over the years. This is one way of measuring that the law has brought down the number of incidences of corporate fraud. * According to Mr Cox, many companies who were initially against the law have come around now and have seen the benefits of the law in terms of costs and performance.