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The Sarbanes- oxley act or the Sarbox Act is an Act of Investor Protection as well as Reform of
Public Company Accounting. Moreover, the critics attribute the loss to slow economic growth. The
passing of the sarbanes oxley act is viewed as an important step towards the improvement of these
aspects. Reynolds (2005) also gave examples of companies that failed because of bankruptcies like
Bethlehem Steel, K-Mart, PSI, Net and W.R. Grace and those that failed because of accounting
scandals like Tyco, Xerox, Rite Aid and AOL. Many of them also believe that it has benefited in
restoring investors’ trust but the cost incurred for the compliance ahs outweighed the benefits. Audit
firms now claim that they have become much more conservative with respect to client retention and
acceptance decisions because the risks associated with auditing increased significantly after the
enactment of the SOX. So far there have been few penalties or imprisonments associated with
blatant fraudulent actions. Section 404 of the Act cannot be delegated to anyone external to the
company it is the sole responsibility of the company and the persons charged with responsibility to
carry out those functions. Relying on the “advanced experience of financial frauds”, American
government developed the Sarbanes-Oxley Act addressing to the main pitfalls discovered during the
whole “pleiads” of financial frauds and bankruptcies. This therefore calls for the considerations of
size, geographic and other. The main intention of the act is to protect the public and investors against
corporate fraud. The five most influential parts of the sarbanes oxley act of 2002 are sections 302,
401, 404, 409 and 502. Thus compliance programs need to consider system based controls The IT
professionals are not well informed on the concepts of internal control and the structure of doing this
is not yet in place. On the other hand, the CFO, CEO, and the chairperson of the board may be a
part of the fraud. The committee, in its turn, evaluates the effectiveness of the auditors to improve
the corporate governance (Gordon, 2002). In this regard, collapse of Enron the seventh largest
corporate of US was a massive hit on US corporate governance and on economy. Title III
“empowers” senior executives for taking individual responsibility for the completeness, adequacy
and accuracy of corporate financial reports (Sarbanes-Oxley Act, 2002). This Act directly affects the
financial reporting process and the code of ethics implemented in various organizations. It also
signifies the penalties for non compliance of the guidelines. The overall results of the survey indicate
that most nonprofit organizations would have a problem implementing Sarbanes Oxley due to higher
costs excluding one or two sections that were already in practice or did not have a high cost (The
Urban Institute Center on Nonprofits and Philanthropy, 2006). They are as follows:- a) Public
Company Accounting Oversight Board- This part contains nine sections. To blame accountants for
the failure of the management is wrong. Upload Read for free FAQ and support Language (EN) Sign
in Skip carousel Carousel Previous Carousel Next What is Scribd. Shanley, 2004)The COSO has
divided the internal control into a) the controls for the environment, that is ethics, and competence
enhancement of employees, followed by the assessment of risk, the risks that are perceived to
hamper the business achieving its objectives. Act is to boost investor confidence by improving the
government. Hamilton (n.d.) points out that among the major goals of the legislation was the reform
of corporate governance and accounting for companies listed on the stock exchange. Section 404 of
the Sarbanes Oxley Act: Introduction There are eleven titles to the Sarbanes Oxley act and the
orders for compliance fall under the sections 302, 302, 401, 404, 409, 802 and 906. According to the
Sarbanes-Oxley Act 2002 the Public Company Accounting Oversight Board was set up to oversee
the audit of pubic companies that are subject to the securities laws. The clauses of the act do not
merely influence the monetary area of companies, it also involves the Informational Technology
sector whose has to store the electronic records of the entity and execute transactions through
electronic devices. Their work load has increased as the ways in which they are used to carry out
their roles have been intensified.
Video Say more by seamlessly including video within your publication. We investigate the impact of
the Sarbanes-Oxley Act on corporate culture, societal controls, internal controls as well as the
rewards and sanctions as they are evolving. Retrieved on July 27, 2011 from Bisoux, T. (August
2005). The Sarbanes-Oxley. Retrieved on July 27, 2011 from. Title VIII describes specific criminal
penalties for financial frauds, including manipulation, alteration and destruction of financial records
(Sarbanes-Oxley Act, 2002). Critics argue that even though the Act provides numerous guidelines
and standards, the cost of its implementation outweighs the benefits. Now this will shift the
paradigm and mergers and acquisitions may become costly propositions and there may arise some
inequality and this will also be the case with transfer pricing. It includes an evaluation as of the end
of the company’s most latest financial year, of the efficiencies of the internal control and company’s
practices for financial dissemination. (Welytok, 2008, p.153). The internal auditors now may be
required to make additions and changes to the COSCO format and to document all internal controls
and provide for a valid assessment. Rittenberg and Miller (2005) found that much of the initial cost
was due to the fact that internal controls were not properly documented or evaluated prior to
Sarbanes-Oxley regulations. These sections deals with the criteria for approval and preapproval of
auditors, rotation of audit partners, audit reports and everything related to the auditors and their
work. As per this title the executives of the company should make sure that the financial reports are
accurate and complete. The bill covers 11 wide areas of the financial reporting as well as audit such
as the independence of the auditor, corporate social responsibility, disclosure requirements, fraud
accountability, tax returns and penalty regarding the corporate frauds etc. Title IX informs about
increased penalties relating to the white-collar crimes and conspiracies (Sarbanes-Oxley Act, 2002).
Please include what you were doing when this page came up and the Cloudflare Ray ID found at the
bottom of this page. The Act also indicates that any audit service not specified including the
provision of tax services may be allowed if preapproved by the audit committee of the issuer. Many
academics, critics and scholars have their doubts on the usefulness and effectiveness of this cat as it
has been proved failure in preventing the financial crisis of 2007-2008 which was the reason of
corporate governance failure. Impact on Accounting Practices: The enactment of the Sarbanes Oxley
Act has a major impact on the accounting and recording practices. Previous studies have consistently
shown that auditors fail to issue going-concern opinions to more than half of bankrupt firms one year
prior to bankruptcy. Sarbanes-Oxley Act also facilitates the collection of enough data and. As the
financial scandals started to grow in number and the compliance to various auditing and accounting
issues began to decline, the concern for new Standards or Legislation grew with them. All
organizations are required by the law to comply with it, regardless of their sizes. Paul Sarbanes.
Maryland’s Democratic Senior Senator Chairman of the Senate Banking, Housing, and Urban Affairs
Committee Pushed for the establishment of an accounting oversight board. The risks that they
perceive will affect the reporting and major enterprise risks do not occur from inside. Retrieved on
July 27, 2011 from Holt, M. F. (2008). The Sarbanes-Oxley Act: costs, benefits and business impact.
A conclusion is drawn if SOX has achieved its basic objectives of bringing transparency to reporting
Discussions and analysisSOX act has been enacted to create transparency in reporting to raise
investors' confidence in the company they may buy. Investors were losing trust in the country
because of these scandals. Investors have continued to lose out because of non-disclosures, fraud and
conflict of interest on the part of credit rating agencies even though there is a section in the Act
relating to the analyst conflict of interest. Hence, these regulations have proven to be damaging,
particularly to small companies and firms, who are getting themselves delisted from the US stock
exchanges and getting listed on stock exchanges across border. UNC Charlotte, MBAD 7090.
Objectives. Summary of the Sarbanes-Oxley Act (SOX) Implications for IT IT Controls and SOX.
Background. A number of major corporate and accounting scandals. Additionally, Reynolds (2005)
indicates that Sarbanes-Oxley is obsessed with bookkeeping which although helpful to stockholders
but investors were aware that both Enron and WorldCom’s earnings were overstated and that they
had undisclosed debts well in advance of either the accountants or federal regulators becoming
aware of this.
However, with some exceptions, it ignores the broader obligations of the corporate directors or
officers to their corporations or standards applicable to the performance of the companies (Nelson,
2008) Sarbanes- oxley act of 2002, also called Sarbanes Oxley or simply Sox, relating to corporate
governance and internal control over financial reporting, was proposed in the Congress, jointly by
Senator Paul Sarbanes and Representative Michael G. Klein, M. (2003). For good or ill-scandals,
SOX have huge impact. The corporate governance codes generally includes major areas of concern
like conflict of interest, accountability, disclosures, accounting standards, role and rights of auditors,
board of directors, shareholders, management etc. Previous studies have consistently shown that
auditors fail to issue going-concern opinions to more than half of bankrupt firms one year prior to
bankruptcy. Florida: The Institute of Internal Auditors Research Foundation. In a survey carried out
by PricewaterhouseCoopers more than 70% of reporting companies indicate that in the first year of
Sarbanes-Oxley compliance required over 50% of their internal audit resources. This will be
mandatory for the management and is expected to ensure that thee is a reliable financial reporting,
and the operations of the company is efficient and resourceful. The committee, in its turn, evaluates
the effectiveness of the auditors to improve the corporate governance (Gordon, 2002). A survey
conducted by The Urban Institute focused on the impact of the Sarbanes Oxley Act on nonprofit
organizations. Many of them also believe that it has benefited in restoring investors’ trust but the cost
incurred for the compliance ahs outweighed the benefits. The Sarbanes-Oxley Act of 2002 is a U.S.
federal law which was enacted and approved on July 30, 2002. The Sarbanes Oxley section will help
the companies gain the trust of investors, have high quality and timely information, save resources,
and have a competitive advantage too. The Sarbanes Oxley Act was implemented on 30th of July
2002. The second title is responsible for ensuring that audit firms do not provide non-audit services to
the same clients. SOX requirements such as the establishment of an audit committee, good
governance, adequate financial porting, whistleblower policy, internal policies on executive loans and
compensation and external auditor independence can have a positive impact on the nonprofit entity
as it contrives to preserve and, even, enhance the trust and confidence the public and its community
have on its nonprofit activities. PricewaterhouseCoopers (2005) indicates that because the
responsibilities of management cannot be delegated to anyone else they often turn to internal audit to
support compliance with the requirements of the Act. Furthermore, according to the Act, companies
need to have an internal. Title III “empowers” senior executives for taking individual responsibility
for the completeness, adequacy and accuracy of corporate financial reports (Sarbanes-Oxley Act,
2002). Washington D.C: National Association of College and University Business Officers.
However, there has been great deal of debate on the viability and effectiveness of the Sarbanes
Oxley Act. All companies normally have some type of internal control. Fullscreen Sharing Deliver a
distraction-free reading experience with a simple link. Investors make a corporate statement accurate
with the act. One group of firms is identified before The SOX Act, while two groups are identified
after the Act. This effect will benefit the economy because the companies will now allocate resources
in the optimum manner. The disclosure requires appropriate representations of the financial position,
performance, and cash flow of an entity for various periods. Each tile deals with a particular aspect
of the law. On the other hand, the CFO, CEO, and the chairperson of the board may be a part of the
fraud. Major problems like the WorldCom and Enron problems had been the result of the risks that
went unheeded in the processes of management and are clear examples of failures that were
occasioned on account of lack of information systems and controls. It is be extremely difficult to
determine whether the benefits outweigh the costs in some cases as the recent episode of failures
indicate that there are some aspects of the Sarbanes-Oxley Act of 2002 that was not implemented in
a number of public companies.
However, the agents have conflicting interests of whether to maximize own or shareholders’ value.
This project involves a detail analysis of the problems of the Sarbanes Act and the US GAAP. Audit
firms are also required to provide financial information for the most recent fiscal year, a quality
control statement of the policies of the firm and its accounting and audit practices; a list of the
accountants that are associated with the firm; information of actions taken against the firm inclusive
of criminal, civil or administrative actions or proceedings that are pending; copies of annual or
periodic disclosures and any other information as the rules of the Board specifies. These are related
to administration, establishment, audit, commission, accounting standards etc. There are disclosure
requirements stipulated in the new listing. This is a very important act which affects the public
companies. SEC filed against the Enron for misguiding by misrepresenting and by tampering the
financial reports. UNC Charlotte, MBAD 7090. Objectives. Summary of the Sarbanes-Oxley Act
(SOX) Implications for IT IT Controls and SOX. Background. A number of major corporate and
accounting scandals. Thus those companies that had to comply with the SOX act automatically were
also liable to comply with the regulations of the SEC. In an interview, Senator Paul Sarbanes, one of
the two minds behind SOX pointed out various problems prevalent in the pre-SOX era such as
faulty corporate governance measures, conflict of interests, auditor independence issues, and
improper disclosures (Lucas, 2004). Additionally, it was discovered that the Enron Audit Committee
also was deficient. Retrieved on July 27, 2011 from Katten Muchin Zavis Rosenman. (2003).
Sarbanes-Oxley Act Changes Best Practices for Public and Private Companies Engaged in
Acquisitions. Now the financial statement which is audited in the yearly report need to also contain
the attested internal control report and this will show the company’s affairs in a more clear a
transparent light. It came amidst corporate scandals and economic downturn. Section 404 is the most
important section of Title IV of the “Sarbanes-Oxley Act” and has been the most costly part of
implementing the new bill. This would appear so since the Sarbanes Oxley Act of 2002 speaks
specifically to off-balance sheet transactions which include derivatives such as credit default swaps.
Some of the major companies that were affected by these scandals included Peregrine Systems,
Enron, Adelphia and Tyco International among others (Shakespeare 333). The Act which is named
after Senator Paul Sarbanes from the State of Maryland and Representative Michael Oxley of the
Republican Party has faced numerous criticisms from corporate leaders and academics due to the
high costs of its implementation and the fact that the same securities and exchange commissions
mandate could have been used to bring the necessary changes to book. FK Publications. Maroney, J.
J. and McDevitt, R. E. (2008). The Effects of Moral Reasoning on Financial Reporting Decisions in a
Post Sarbanes-Oxley Environment. The financial statement in the yearly report which is audited must
also be attested by the auditor over the internal control and financial reports. This board also gives
guidance on registration of auditors and also specifies the rules and procedures for conducting audit.
Since the Act is applied on a gradual basis, the possibility of. Adobe InDesign Design pixel-perfect
content like flyers, magazines and more with Adobe InDesign. Critics argue that even though the Act
provides numerous guidelines and standards, the cost of its implementation outweighs the benefits.
First, the Act offers pertinent reforms that are intended to enhance. Internal audit has been perceived
as one of the important tools for. NACUBO suggests that the same mechanism for the management
of colleges and universities should be adapted. It also signifies the ethics to be followed by the
financial officers. These companies included industry giants like Enron, WorldCom, Xerox,
Halliburton, Arthur Andersen, and Tyco (Patsuris, 2002). Help Center Here you'll find an answer to
your question.
The increasing corporate scandals and unethical practices are fatal for entire financial market that
hurts investors’ confidence. Lipman, Frederick D. (2008). International and U.S IPO Planning. A
Business Strategy Guide. It came amidst corporate scandals and economic downturn. They
attempted to avoid disclosure of the company’s increasingly weakening financial condition and thus
failed to warn market and all other interested parties about its potential losses and bankruptcy
(Ruder, p. 6). In spite of the possible prevention of complete collapse, the Enron’s officers continued
to hide the financial problems of the company (Ruder, 6). In most cases the provider will only have
to review the working process of the. The failure of that act must have made the legislators rethink
the issue of this act. Enron was charged for several reasons like for tax evading, artificial inflated
profit disclosing, misleading market with inflated stock prices, manipulation of subsidiary
companies, manipulation of financial statement for personal gains etc (Tesfatsion, 2011). Download
Free PDF View PDF The Law of Unintended Consequences. Section two specifies the functions of
the auditors and imposes their independence from their clients. The clauses of the act do not merely
influence the monetary area of companies, it also involves the Informational Technology sector
whose has to store the electronic records of the entity and execute transactions through electronic
devices. Governance Failures, Corporate Failures and Restructuring. The main aim is to assist US
based companies by giving an international IPO without having to adhere with registration provisions
of SEC and to mainly to escape from the applicability of the some of the most draconian provisos of
SOX, especially the high cost attestation report on internal control procedures from the independent
auditor as demanded under Section 404 of the SOX. (Lipman, 2008, p.123). Since the event of
major corporate frauds in the United States and other countries, many laws and regulations have
been made in order to regain the confidence of the investors and to make sure that such incidents do
not take place again. Besides, there were other multiple corporate scandals were detected and the
case of Tyco International scandal was also highly criticized. The Auditing firms have a large impact
on account of this act. Therefore they are not only responsible but also accountable for their
stakeholders’ interest. The passing of the sarbanes oxley act is viewed as an important step towards
the improvement of these aspects. Sarbanes Oxley Act is a federal law established for regulations of
financial practice and corporate governance. Previous studies have consistently shown that auditors
fail to issue going-concern opinions to more than half of bankrupt firms one year prior to bankruptcy.
It increased the sanders to be maintained by all the public companies, its management and
accounting firms. The name of this law was given after the name of the US senator and US
representative Paul S Sarbanes and Michael G Oxley respectively. Indeed the implementation of
SOX has its benefits for nonprofit organizations but the cost factor dampens the probability of its
implementation. Kuschnik B. (2008). The Sarbanes Oxley Act: “Big brother is watching you” or
adequate measures of corporate governance regulation. Since the enactment of the bill, numerous
questions have been raised on the extent to which the bill has proved to be beneficial to the investors
as well as the shareholders and the extent to which it has provide the guiding principle for the
companies to improve and enhance the truthfulness and reliance of the reporting. Till the years 2002,
the corporate scandals were major issues for US economy and, the successful implementation of this
act have played major role in preventing the frequencies of corporate governance (Bisoux, 2005,
p.25). On the other hand, it is quite notable that five years after its implementation, collapse of
Lehman Brothers and other financial institution again pointed figure against the effectiveness of this
act. To blame accountants for the failure of the management is wrong. The cost of implementing the
rules will be hiked for the company. In this regard, Congress signed and passed in 2002 the Sarbanes
Oxley act (SOX) as a response to the financial scandals and bankruptcies of companies such as
Enron, Xerox, Sunbeam, Worldcom, Tyco and so on (Coates IV, 2007). Section 404 has three main
goals, and they are as under. Oxley Republican Ohio. Meet the. Culprits. Authors. SOX 2002. This
tendency can be explained by few financial scandals and bankruptcies, including the cases of Enron,
WorldCom, Tyco and others.
During the first ten years of implementation, the Act has successfully controlled and standardized
the public accounting and financial reporting. It is however to be noted that the act is for public
companies and many companies have cut issues to escape the provisions of the act. Benefits of Act.
Three quarters of the financial executives in the Oversight Systems survey said that their company
had realized a benefit from Sarbanes-Oxley compliance. Spurzem, B. (2006). Retrieved November
26, 2011, from. Audit firms now claim that they have become much more conservative with respect
to client retention and acceptance decisions because the risks associated with auditing increased
significantly after the enactment of the SOX. Rittenberg and Miller (2005) have also identified some
lessons that were learned that can assist in improving the efficiency and effectiveness of control
evaluations in the future. The addition was the mandatory disclosure required. (Coates, 2007) The
act has long term and far reaching consequences, not only in the governance of the public companies,
but also in the nature of auditing and the functions of auditors and financial controllers. According
to Holt (2008) when President Bush signed the act into law he indicated that it will be used to act
against those who have significantly reduced confidence in the US stock market, to expose
corruption, punish those who seek to do wrong and protect the rights and interests of workers and
investors. Enron’s officers failed to respect the accounting systems and to provide adequate, timely
and true information about its financial position. We use cookies to create the best experience for
you. The act emphasizes on the top management of the company to claim the responsibility and
ownership of the financial statements. It contains thousands of paper examples on a wide variety of
topics, all donated by helpful students. The main sectors which were mainly influenced by the
Sarbanes Oxley Act are given below: Impact on accountants’ liability: Sarbanes Oxley Act has a
major impact on the liability of accountants. An inappropriate decision for FSA often leads to
misguiding the investors by presenting non-complying financial reports. The Sarbanes Oxley Act is
arranged into eleven titles (Prentice 5). Deloitte and Touche LLP recently released a new publication
named the. Before the passing of this act, auditors may not have given any importance to this aspect.
According to Rittenberg and Miller (2005) companies have struggled to put in place the internal
controls required by the Sarbanes-Oxley Act 2002, the cost has been high but only a few studies
have really looked at the benefits that have been and can be derived from its implementation. The act
brought reform into American business and enhanced criminal penalties for any company that
destroys, falsifies, fabricates or alters financial records (Heckman, 2009). It also signifies the
protection provided to the whistle blowers. It also served to increase the responsibility of chief
executive officers (CEOs) and Chief Financial Officers (CFOs) by imposing both civil and criminal
penalties and extending the statute of limitations relating to suits for securities fraud from two years
after its discovery to five years after the actual violation (Hamilton n.d.). Upload Read for free FAQ
and support Language (EN) Sign in Skip carousel Carousel Previous Carousel Next What is Scribd.
By continuing we’ll assume you’re on board with our cookie policy. Although the Sarbanes Oxley
Act was enacted after the scandals of publicly traded companies nonprofit organizations can also
benefit from the act. However, the true benefits can be realized in the long run only. The process of
evaluation has facilitated improvements in basic internal controls such as reconciliations and
segregation of duties (Rittenberg and Miller 2005). What will be the effect of this on executives of a
pubic corporation is a moot question. We use cookies to create the best experience for you.
Additionally, the act necessitates that companies ought to establish. It has prevented them from
delegating key aspects of their responsibilities to outside parties and seeks to ensure that they focus
on making the control environment reliable so that investors’ confidence in information provided in
annual reports can be improved.