Sarbanes-Oxley Act Essay Example

Sarbanes-Oxley Act Essay The Sarbanes-Oxley Act of 2002, also known as SOX or Sarbox, was put into law by the United States federal government on July 30, 2002.   This act was created as a reaction to a plethora of corporate and accounting controversies, such as that associated with Enron, Tyco International and WorldCom.   These controversies involved corporate frauds during the years 2000 to 2002 and these were related to the conflict between the interest rates and compensation measures used by these companies.   These fraudulent corporate cases resulted in a total loss of approximately $500 billion which then significantly lowered the United States’ market value (Farrell, 2005).   More importantly, these corporate controversies significantly decreased the public’s confidence in the traditional measures taken by companies with regards to accounting and reporting of assets and incomes.   The Sarbox Act, identified as Pub. L. No. 107-204, 116 Stat. 745, was tagged as such, based on th e Act’s sponsors, namely Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH).   The Sarbanes-Oxley Act has been described as the most comprehensive reform in American business procedures since the administration of Franklin D. Roosevelt. The Sarbanes-Oxley Act covers a broad spectrum of business practices and describes an improved protocol that should be implemented in all United States public company boards and sects.   It also identifies the responsibilities of the Corporate Board with regards with criminal acts and their associated penalties.   The Act also states that the Securities and Exchange Commission (SEC) is responsible for executing rules so that all companies follow this Act (Hevesi, 2006).   It is believed that this Act is essential to the stability of the United States’ economy.   However, there are also comments that the Act will result in more confusion with regards to standards in corporate practices, resulting in damage than correction or prevention of wrong business practices. We will write a custom essay sample on Sarbanes-Oxley Act specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Sarbanes-Oxley Act specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Sarbanes-Oxley Act specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The Sarbanes-Oxley Act also created a new agency, named as the Public Company Accounting Oversight Board (PCAOB), which is mandated to supervise, regulate, inspect and control all accounting firms.   Essentially, the PCAOB plays a major role as the general auditor of public companies across the United States.   The Sarbox Act is also responsible for providing independence, governance, assessment and disclosure of corporate auditing processes among companies across the United States. The establishment of the Sarbox Act has facilitated the relocation of the business center of the world from New York’s Wall Street to London, where the Financial Services Authority is known to control the financial processes with a less rigorous method.   Also, other companies from other countries around the world have benefited from the Sarbox Act because these companies now have better options to gain higher credit ratings within the United States (Neil, 2006).   In addition, companies also get a better chance of obtaining better credit scores with the London Stock Exchange.   Such changes are mainly due to the implementation that lower interest rates be used by companies across the United States (Schumer and Bloomberg, 2006). The Sarbox Act also indicates in its Section 404 that every company should be managed and auditor both by internal and external auditors so that future financial frauds will be avoided.   This provision may be costly because it will take routine documentation and testing, yet it saves a significant amount of money, in case another fraudulent case happens in the future. Sarbanes-Oxley Act Essay Example Sarbanes-Oxley Act Essay Sarbanes-Oxley Act, signed into law by President George Bush on June 30, 2002, was crafted in order to improve securities legislature and to strengthen the requirements of audit checks. The act appeared in response to a string of corporate scandals and was meant as a reaction to these scandals. The article â€Å"Private Companies Feel Effects of Sarbanes-Oxley† by Thomas Hoffman concentrates on the effect the implementation of the act had on private companies. In essence, the law was meant to address issues of corporate fraud at publicly traded companies, but now the private companies are beginning to feel the impact as well. This is true in particular with reference to the so-called whistle-blowing provision that requires that â€Å"employees must be given the means to anonymously notify federal regulators or corporate audit committees of any potential wrongdoing within their companies† (Hoffman, 2003). The companies will have to adapt their internal computer systems to the need to provide confidential information. In addition, private companies considering incorporation will then have to meet all the requirements for public companies, including the costly compliance with Section 404 that requires companies to improve their internal controls and to report their adequacy in an annual report confirmed by auditors. Some private companies have already begun to update their internal controls in accordance with Sarbanes-Oxley. Thus, Fred Pauls, corporate records manager at J.R. Simplot Co. in Boise, Idaho, reports that their company â€Å"last year began indexing its purchase-order system so the application meets Sarbanes-Oxleys record-keeping requirements† (Hoffman, 2003). Besides, the prospect of an acquisition motivates a private company to strengthen internal controls to meet the requirements of the acquiring public company, states Jocelyn Arel, a partner in Testa, Hurwitz Thibeault LLP (Hoffman, 2003). We will write a custom essay sample on Sarbanes-Oxley Act specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Sarbanes-Oxley Act specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Sarbanes-Oxley Act specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Hoffman, T. (2003, August 4). Private Companies Feel Effects of Sarbanes-Oxley: Financial reporting law could force IT changes even at nonpublic businesses. Computerworld. Retrieved January 14, 2006 from http://www.computerworld.com/printthis/2003/0,4814,83672,00.html. Sarbanes-Oxley Act Essay Example Sarbanes-Oxley Act Essay Sarbanes-Oxley Act, signed into law by President George Bush on June 30, 2002, was crafted in order to improve securities legislature and to strengthen the requirements of audit checks. The act appeared in response to a string of corporate scandals and was meant as a reaction to these scandals. The article â€Å"Private Companies Feel Effects of Sarbanes-Oxley† by Thomas Hoffman concentrates on the effect the implementation of the act had on private companies. In essence, the law was meant to address issues of corporate fraud at publicly traded companies, but now the private companies are beginning to feel the impact as well. This is true in particular with reference to the so-called whistle-blowing provision that requires that â€Å"employees must be given the means to anonymously notify federal regulators or corporate audit committees of any potential wrongdoing within their companies† (Hoffman, 2003). The companies will have to adapt their internal computer systems to the need to provide confidential information. In addition, private companies considering incorporation will then have to meet all the requirements for public companies, including the costly compliance with Section 404 that requires companies to improve their internal controls and to report their adequacy in an annual report confirmed by auditors. Some private companies have already begun to update their internal controls in accordance with Sarbanes-Oxley. Thus, Fred Pauls, corporate records manager at J.R. Simplot Co. in Boise, Idaho, reports that their company â€Å"last year began indexing its purchase-order system so the application meets Sarbanes-Oxleys record-keeping requirements† (Hoffman, 2003). Besides, the prospect of an acquisition motivates a private company to strengthen internal controls to meet the requirements of the acquiring public company, states Jocelyn Arel, a partner in Testa, Hurwitz Thibeault LLP (Hoffman, 2003). We will write a custom essay sample on Sarbanes-Oxley Act specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Sarbanes-Oxley Act specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Sarbanes-Oxley Act specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Hoffman, T. (2003, August 4). Private Companies Feel Effects of Sarbanes-Oxley: Financial reporting law could force IT changes even at nonpublic businesses. Computerworld. Retrieved January 14, 2006 from http://www.computerworld.com/printthis/2003/0,4814,83672,00.html.