SarbaneOxley Paper Acc561 Week 2 Myron Cleveland

Submitted By MyronJ
Words: 1058
Pages: 5

Sarbanes-Oxley Act
Myron Cleveland
Accounting 561
July 5, 2015
Jeri Marcia

In 2002 the Sarbanes-Oxley Act was created as a means to introduce major changes to regulate financial practice and corporate governance. Also known as the Public Company Accounting Reform and Investor Protection act. This act was enacted to protect investors by improving the accuracy and reliability of corporate disclosure made pursuant to the securities laws and for other purposes. This act replaced the Security exchange Act of 1934, the Security Act of 1933, the Employee Retirement Securities Act of 1974, Investment Advisors act of 1940, title 18 of the United States Code, and title 28 of the United States Code. The architects of this act are Senator Paul Sarbanes and Representative Michael Oxley. This law was signed by President by GW Bush on July 24th, 2002 (Sox Law, 2015). Arranged into 11 titles, and considered the most important of the titles are 302, 401, 404, 409, 802 and 906. These sections are aimed at addressing the compliance of any legal entity. The titles are as follows: Title 302 discusses disclosure. This title mandates a set of internal procedures which are designed to ensure accurate financial disclosure concerning the financial officers whom are to maintain the internal control. This however; is different from internal control over financial reporting. Title 401, disclosures in periodic reports, (Off-balance sheet Items) like that which drew attention to the fraudulent use by Enron, and Lehman Brothers. Sarbanes-Oxley requires the disclosure of all material off-balance sheet items. Title 404, along with the Public Company Accounting Oversight Board (PCAOB) and the Security Exchange Commission (SEC) regulates smaller public companies to document a management assessment of their internal controls over financial reporting. Title 409, Explains that issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting.
Title 802 describes the penalties for influencing US agency investigating or proper administration. This section imposes penalties of fines up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. This section also impose penalties of fines and or imprisonment for up to 10 years on any person who knowingly and willfully violates the requirements or maintenance of any audit or review for a period of 5 years (Sox Law, 2015)
To specifically evaluate whether the Sarbanes-Oxley act will be effective enough to help avoid fraud in the future, we will first look at analyzing the cost benefit of the Sarbanes-Oxley (SOX). There has been a large amount of research concerning the benefit of SOX. Variables contained within SOX and the changing environment of the stock market and corporate earnings create difficult analysis. As a target, title 404 of the act requires management and an external auditor to report on the accuracy of the company’s internal control concerning their financial reporting of all variables. In doing so, the compliance costs of SOX may be identified. Some of these costs are attached to surveys. For example, and annual report provided by the Financial Executives International (FEI) points out the cost of an annual survey concerning section 404. As an example for the cost benefit of 168 companies with annual revenues of 4.7 billion, the average cost of an audit was 1.7 million. This is approximately 0.036% of revenues (Wikipedia, 2015). In 2007 however; a survey of Foley and Lardner focused on changes which affected the total costs of being a U.S. public company. Nearly 70% of those who responded indicated that the SOX affected revenues so much so that they felt as though public companies should be exempt from section 404 if they were