Week 2: Sarbanes-Oxley Act 2002
UOP ACC 561: Accounting
20 Aug 2013
The Sarbanes-Oxley Act of 2002 (SOX) was a direct output of the financial atrocities perpetuated by financial institutions such as Enron, Worldcom and even the Savings and Loan debacles that serves to dupe and cripple the financial markets. As a result of their deceptive accounting practices, many investor lost millions of dollars. The Sarbanes-Oxley Act of 2002 will be explored and its intended impact to prevent unethical accounting practices.
The primary goals and tenets of SOX with respect to fraud
The primary goals and tenets of the Sarbanes-Oxley Act of 2002 (SOX) are focused on making financial statements less susceptible to fraud and revamping the auditing process “to restore investor confidence and public trust in financial information” (Harvard Business Review, 2006). In addition, Sox calls for corporate management to be more accountable for both fraud prevention and detection. Likewise, corporate management is also more accountable for the presence of fraud with the corporation; under SOX, those who participate in fraudulent activities will be dealt with “severe civil and criminal penalties” (Harvard Business Review, 2006). Lastly, SOX also created protective freedoms for the whistleblowers of the corporate fraud; this is extremely important because whistleblowers were often victimized for speaking out against the fraudulent activity within the organization.
Enforcement of the Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002 bestowed the Securities and Exchange Commission (SEC) with authoritative powers to employ the goals and tenets of SOX; said employment was designed to foster even more “improved corporate governance, financial reporting, and audit functions” (Harvard, 2006). Management would not only exercise more reported involvement in the internal controls of financial reporting, but also refrain from exerting undue...