Sarbanes Oxley
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Sarbanes-Oxley Act
Background:
The Sarbanes-Oxley Act was sent before the 107th Congress of the United States on Wednesday, January 23rd, 2002. The act was formally adopted on July 30th, 2002. Congress was prompted to pass this legislation in the wake of several corporate financial accounting scandals that occurred in the previous years. These scandals shattered the publics trust of the accounting and reporting practices of corporations in the United States. The organization responsible for oversight of the new legislation is the Securities and Exchange Commission, otherwise known as the SEC.
Provisions of the Act:
Compliance to the Sarbanes-Oxley Act is now a requirement for all U.S. public companies. Comprised of both new and/or enhanced standards that companies must now follow, the act not only targets the financial side of corporations but the IT side as well. The legislation is wide ranging however the main elements of the act cover standards for the creation of a public company accounting oversight committee, auditor independence, corporate responsibility, enhanced financial disclosure, and the storage of business records, electronic records, and electronic messages. The most talked about corporate governance rules fall under Sec.404, which focuses on a companys financial controls, and Sec.303a, which focus on management/board processes and policies for risk assessment and management.
Impact:
Since being passed into law, the Sarbanes-Oxley Act has had accountants, auditors, and managements across the U.S. scrambling to meet the new standards. Public Companies have had to step up their efforts to meet the “new financial reporting standards and pinpoint weaknesses in their internal controls”(Bisoux). Some positive impacts of the act will come from the improved internal controls that a company will now have, increased efficiency in uncovering weaknesses in the company that would previously have gone unnoticed, and the end of the “all controlling” CEO who will now be held more accountable for the decisions they make for the company. Majority of the criticisms faced by the Sarbanes-Oxley Act stem from the infamous Sec.404. These criticisms