Sarbanes-Oxley Paper
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Sarbanes Oxley Paper
The Sarbanes-Oxley (SOX) act was passed into law in 2002. It was created in response to major financial scandals that largely shook the publics confidence in corporate accounting practices. It was a significant response to improper record handling techniques. Under the law, corporate managers must assess whether they have sufficient safeguards to catch fraud and bookkeeping errors. There are consequences for not complying with the provisions of the act and there are certainly advocates and opponents of it. Price Waterhouse Coopers says “Without a doubt, the Sarbanes-Oxley Act is the single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public accounting since the US securities laws of the early 1930s.” (Pricewaterhousecoopers).
High-profile scandals such as those committed by Enron and WorldCom were possible because before SOX, there wasnt a comprehensive system in place to check company books in the private sector. Under SOX, the Security and Exchange Commission (SEC) is the body responsible for administering the acts provisions. The SEC sets deadlines for compliance and publishes the rules for its requirements. The SOX act is divided into 11 main areas and the documentation is freely available via the Internet. Some of the acts provisions include mandates that all business records, including electronic records and messages are saved for at least five years. “Sarbanes-Oxley developed the Public Company Accounting Oversight Board, a private, non-profit corporation, to ensure that financial statements are audited according to independent standards. Sarbanes-Oxley also holds chief executives and chief financial officers directly responsible for the accuracy of financial statements” (Fass, A. 2003).
The consequences for not complying with these provisions can be quite severe and include fines, imprisonment of the responsible company officers or even both. Bank of America was once fined a total of 10 million dollars. In fact, the Sarbanes-Oxley act can actually hold the individual CEOs and directors accountable and punishable by up to $5 million and 20 years in prison for the crimes of the company, even if they had no knowledge of those crimes. This was considered an unprecedented level of accountability and would likely never have been possible without the public outcry from the scandals which made the act necessary.
Sarbanes-Oxley is “consistently called the broadest-sweeping legislation to affect corporations and public accounting since the 1933 and 1934 security acts, experts agree the resulting changes are just beginning” (Fass, A. 2003). While The Sarbanes-Oxley act has a great deal of support, it is not a perfect solution. Alan Greenspan once called for changes to part of it and in fact called one of its provisions a “nightmare”. In addition,