Sarbanes-Oxley Act of 2002
Sarbanes-Oxley Act of 2002Kateri GarveyACC561April 11, 2016Steve CorderSarbanes-Oxley Act of 2002The regulatory environment consists of several laws and regulations that have been developed by the three levels of government (Federal, state, and local) to limit control over business practices. While regulatory compliance has always been a practice in doing business, in the various industries there are penalties which are implied when the regulations are not followed. Many of these regulations have been used for many years, and some of them are new.Due to the various scandals involving accounting practices involving such large corporations as Enron and WorldCom, the Sarbanes-Oxley Act of 2002. The goals of the initial act included protecting shareholders, by stopping and preventing fraud of accounting firms, and to also help increase how the public views the financial reports. The SOX, or the Sarbanes-Oxley Act, has increased the costs to companies as well as the amount of work which must be done to remain in compliance, with the legislation set for in the Act (Maleske, 2012). The SOX was created under the U.S. Securities and Exchange Commission to help protect the investors from losing money and falling victim to unethical business practices.
The Sarbanes-Oxley Act is named after the two gentlemen that are considered the creators and builders of the act, Paul Sarbanes, and Michael Oxley. The SOX is something all organizations must comply with, or face penalties. There are eleven titles contained within the Sarbanes-Oxley Act, some are more important than other, although they all serve a purpose. Section 302 of SOX requires periodic financial reviews which must be certified, and the organization cannot change information nor send money out of the United States. In Section 401 the financial statements must be true and accurate when published. The financial statements must also include things that would not be included on the balance sheet, such as certain liabilities and obligations. In short Section 401 provides for transparency in the financial statements (“Sarbanes-Oxley Act 2002,” n.d.).According to Kasia Moreno, a contributing author with Forbes, the current intense regulatory environment is due to the wrong doings of the financial system over more than the last decade. The financial system was in a near collapse, and there was the economic downturn as a result of the massive scandals, which affect many Americans. While the regulations are seen as a way to help with preventing future wrong doings, with financial statements and causing the stress on the financial system, this may not always be the case. Moreno goes on to state that the regulations have changed how business is conducted now and in the future (Moreno, 2014).