August 18, 2014
Sarbanes-Oxley Act Paper The Sarbanes-Oxley (SOX) Act was enacted by legislation in 2002 to regulate the financial practice of businesses within the United States. During the time that it was passed, many large corporations were being scrutinized for their business practices and accounting scandals. Most notably, these corporations include Enron, Tyco International, and WorldCom among others. The scandals cost investors billions of dollars by manipulating financial books through means of inflated, fraudulent, or even non-existent assets and profits. In some cases, debts and losses were placed into entities that were offshore so that they could not be seen in their financial statements, making the corporations look healthier than reality.
SOX has 11 major elements that aim to enhance the ethical behavior of businesses and their accounting practices (including external firms). These include elements such as auditor independence, corporate responsibility through senior executive certification, and criminal accountability for corporate fraud, among others. SOX was put into place under the expectations that it would increase reporting transparency and the trust of investors. By having principles set forth by SOX in place, the public would have a stronger level of confidence in investing their money. Furthermore, having regulations and governance on accounting practices would hopefully have a positive effect on the amount of error and fraud in the financial statement of corporations. With accountability becoming more of a precedent for executive leadership and criminal litigation as possibility, ownership of ethical financial reporting was believed to improve with the implementation of SOX.
SOX also had consequences to the United States financial market