Sarbanes-Oxley Act Essay

Submitted By Naoewill
Words: 1542
Pages: 7

Sarbanes-Oxley Act Corporation environments are continually changing with one exception-fraud. With particular reference to public organizations, fraud has been cited as the number one cause of loss of company funds. Losses occur either through misappropriation of funds or assets, or the exploitation of poor or lack of internal controls within the company. According to NYSSCPA.ORG, “President George W. Bush signed the Sarbanes-Oxley Act ( SOX) of 2002 (Public Law 107-204) on Tuesday, July 30, 2002. Congress presented the act to the president on July 26, 2002, after passage in the Senate by a 99-0 vote and in the House by a 423-3 margin” (The sarbanes-oxley act). A new federal law was passed in reaction to corporate scandals such as the Enron, WorldCom, Tyco cases. The Sarbanes-Oxley Act puts extreme pressure on companies accounting practices and annual reports. Simply put, the act was created to protect investors from corporate corruption, and accounting misconduct. This act also created a new agency called the Public Company Accounting Oversight Board, or PCAOB. The main purpose of Sarbanes Oxley Act is to ensure that the corporate sector works with transparency and provides full disclosure of information as and when required. The transparency purpose of Sarbanes Oxley Act is fulfilled by ensuring real time disclosure of information, the adherence to guidelines of the Generally Accepted Accounting practices, full financial details being made available of all the transactions not mentioned in balance sheet. This purpose of Sarbanes Oxley Act is also fulfilled by an expanded disclosure of financial and non financial control measures in force in every company. Similarly, public certification of these internal controls and financial measures also helps fulfilled the purpose of Sarbanes Oxley Act (Bing). The objective of Sarbanes Oxley Act is to make company audit committees, the auditing profession, and corporate management work together to reduce the risk of these types of scandals recurring. Investors will have a better sense of security and confidence knowing that they are investing their money in public traded companies that uphold the rules and regulation of Sarbanes Oxley Act. Especially, people like me who are making plans to invest in the stock market in the near future. It is also reassuring that the government will hold people accountable for falsifying documents, and/or anything else that is considered illegal. The act might also put a lot of smaller companies that haven’t gone public yet on the straight and narrow path of business. In the past some companies have gone public without being financially capable of growing. Unfortunately, everybody doesn’t have the investor’s role in mind. A lot of people are not happy with the act. Section 404 of the act requires among other things, that each company’s annual report must have and assessment of the company’s internal control structure and financial report. According to The CPA Journal “Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) requires management and independent auditors to report on the effectiveness of internal control over financial reporting. The concept of internal control is not new; what section 404 introduces is mandatory reports on internal control by management and independent auditors. The belief behind the requirement is that such audited reports could prevent corporate scandals such as Enron and WorldCom” (Lin, 2006). So that CEO’s and CFO’s must review and certify that internal controls are evaluated. So if anything goes wrong or becomes an issue, he/ she become held responsible because it was his/her duty to provide accurate information that was true to their knowledge. According AICPA, “The AICPA has consistently urged implementation of Section 404(b) for all publicly held companies. Section 404(b) has led to improved financial reporting and greater transparency. The AICPA believes that all investors in public companies should have