Sarbanes-Oxley Act of 2002
Cynthia Banks
ACC/561
Monday January 18, 2016
Rashida Heard
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act was enacted July 30, 2002. It was known as the “Public Company Accounting Reform and Investor Protection Act” in the Senate, and “Corporate Auditing Accountability and Responsibility Act” in the House. It has always been more commonly known as Sarbanes-Oxley, or SOX. It was enacted to protect the general public, who might invest their monies in companies, from accounting fraud and errors in numbers posted by those companies. It is designed to improve the accuracy of corporate financial disclosures. It is governed and policed by the U.S. Securities and Exchange Commission, or the SEC. The SEC sets compliance deadlines and rules and requirements are published by the SEC.
Those rules and requirements are law for all U.S. public accounting firms, and company boards. It also has segments that apply to private companies.
The law contains eleven sections. It was a clear reaction to a number of corporate accounting scandals that included Enron, and Worldcom. There was a run of scandals when it came to corporations and their financial reporting. The scandals cost investors billions of dollars, and affected all involved when the shares prices plummeted. It hit the Stock Market, and Securities market hard as well. It spells out responsibilities of corporations’ boards of directors, handing out criminal sentences for perpetrators, and handed the SEC the reigns to create compliance regulations. One of the more important parts of SOX is that the most upper of management must certify the accuracy of company accounting and financial information. SOX also heightened the role of outside auditors who review a company’s records for accuracy.
When the scandals, and subsequent collapses, happened with those companies whose accounting departments were a house of cards, the stocks held by mutual funds and pensions...