ACC 340 Week 5 Sarbanes Oxley Paper
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acc_340_week_5_sarbanes_oxley_paper.docxSARBANES-OXLEY PAPER 5
Sarbanes-Oxley Paper
Name
University of Phoenix
ACC/340
Professor: Richard Calabria
June 20, 2011
Running head: SARBANES-OXLEY PAPER 1
Sarbanes-Oxley Paper
The United States federal Sarbanes-Oxley Act was founded to improve the accuracy and reliability to ultimately protect investors. The Act is known as the Public Company Accounting Reform and Protection Act of 2002. The Act was signed into law on July 30, 2002.
The Reason for Passage
During the late 1990s and early parts of the year 2000 many acts of corruption in business world went on without a regulation to stop it. The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation enacted in response to the high-profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise (Spurzem, 2006). Following these scandals the President of the United States of America at the time President George Bush push for the act to be pass by the house and senate so he could sign it into law to protect investors. The act passed the House 423-3 and the Senate 99-0 and was promptly signed into the law by the president. Once passed the act has been view as the most extensive measure to attempt to improve business accounting regulations since the Security and Exchange Act of 1934. The ACT is a direct attempt to keep businesses from intentionally committing financial fraud and misleading their stockholders and investors. The ACT requires organizations to administer far-reaching corporate governing policies to anticipate and stop fraudulent activities with an organization and to react accordingly. The Sarbanes-Oxley Act is administered by the Securities and Exchange Commission, and gives clear guidelines on which organizational records need to be kept and for how long they must be kept. The enforcers of the act believe improving accuracy and reliability of corporate disclosures and financial reports given to investors in public companies improve protection. The Securities and Exchange Commission has established harsher civil and criminal penalties for violations of securities laws, and inflicted to be significantly longer jail sentences and larger fines for corporate executives who knowingly and willfully falsify financial statements. Sec. 802(a) "Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both(United States Congress, 2002)."
How has it affect Affected the Accounting Society
The Sarbanes-Oxley Act required a Public Company Accounting Oversight Board to be established. The Public Accounting Oversight Board (PCAOB) is responsible establishing codes of ethics for financial reporting and the monitoring of accounting firms that audit public corporations. The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports (Johnson, 2011). Public accountants that provide services to public companies are required to be registered with the Public Company Accounting Oversight Board.
Section 404 - Management Assessment of Internal Controls
This section requires that the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) confirm the effectiveness of their company’s internal controls for financial reporting. Section 404 also specifies that each annual report of an issuer will contain an internal control report and that it will clearly list the responsibility of management for establishing and maintaining an adequate internal control structure, and will contain an assessment of the effectiveness of the internal control structure and procedures of the issuer for financial reporting (United States Congress, 2002).
Conclusion
In conclusion, the President signed the Sarbanes-Oxley Act into laws to reduce financial crimes and fraud committed by corporate insiders. These types of crimes are unacceptable, and are bad for business in the United States and in the world of business as a whole. Many investors’ life savings were destroyed by corporate insiders and if the ACT had been in place many investors would have been protected. With all the modifications and changes that are now enforced the business world is a much safer place when it comes to investing. Although the changes have drastically improved the process, I still believe there are more actions that can be taken to safeguard the investors. Even with regulations the heart of the plan lies in developing an ethical balance because all profits are not good especially when it is at the expense of unknowing investors that have their life savings invested.
References
Johnson, J. (2011). PCAOBOVERSEES. pcaobus.org/Pages/default.aspx
United States. Congress (107th, 2nd session: 2002) (2002) Sarbanes-Oxley Act of 2002: conference report. Washington, D.C.: U.S. G.P.O.
Spurzem, B. (2006). Sarbanes-Oxley Act (SOX). Retrieved from http://searchcio.techtarget.com/definition/Sarbanes-Oxley-Act
