Essay about ACC561 JMC Wk2

Submitted By jess0898
Words: 786
Pages: 4

Week 2 The objective for this week was to review and dicuss the Sarbanes Oxley Act of 2002. Included in the discussion will be the circumstances leading up to the Act, a summary of the major provisions of the Act, how the Act changed the accounting regulatory environment, the perceived positive and negative effects caused by the Act since it's implementation.
Sarbanes Oxley Act of 2002 The original Act was known as the "truth in securities" law, the Securities Act of 1933. The objectives of this Act were to require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities, (U.S. Securities and Exchange Commission, 2015). According to the Sarbanes-Oxley Act (2006), “the legislation came into force in 2002 and introduced major changes in the regulations of financial practices and corporate governance. Named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, it also set a number of deadlines for compliance,” (N/A). The Sarbanes-Oxley Act (SOX) was passed by congress in 2002 to reduce unethical corporate behavior and decrease future corporate scandals, (Kimmel, Weygandt, & Kieso, 2011, p. 8). This act was introduced to help protect shareholders and the general public from companies that were doing fraudulent practices or accounting errors. This act was enacted in response to several high-profile financial scandals, like Enron, WorldCom and Tyco.
Provisions
The Act was created to restorage confidence in the accounting profession. The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession, (U.S. Securities and Exchange Commission, 2015). According to Hall (2003), “the Sarbanes Oxley Act of 2002 (the Act) has several effects of interest to financial service professionals. it increases the reliability of financial statement information that financial service professionals may use. the Act proscribes certain conflicts of interest in organizations involved in both investment banking and security research. it mandates disclosure of conflicts of interest by securities analysts. it increases reliability of analyst recommendations. it mandates studies that could prove fruitful in increasing reliability of financial statements and financial analysis even more in the future, (p. 14).
How the Act Changed the Accounting Regulatory Environment The act was aimed at changing the existing regulatory structure. New rules and regulations were created for business audit and auditors. According to Wood (2011), “auditors of public filers are required to register with the PCAOB. The PCAOB was charged with standard etting for audits by registered accounting firms of public filers, inspectin of registeder firms and enforcement, (Who are auditors?). There are federal and state regulators. Public accountants/auditors are regulated by the State Boards of Accountancy. They grant licenses to practice accountancy in each state, (Wood, 2011).
The Effects of the Activities The Sarbanes-Oxley Act comes with a price. Business incur additional costs directly attributed to the legislation. Expanding the scope of annual audits would result in increased costs for the audits, in addition to increased liability for auditors, executives and board…