Sarbanes-Oxley Act of 2002
July 28, 2015
Companies in this day and age are generally viewed in one of two ways: either as honorable members of the communities they serve, seeking only to do the best they can to do right by their customers and employees, or as self-serving entities, concerned only with increasing its profit margin at the expense of others, whether the others are employees, customers, or investors. Regardless of someone’s personal view of the corporate world, the reality is that these are both the truth and always have been. Prior to the Sarbanes Oxley Act of 2002, there was little to keep company fraud in check and scandals and fraud were relatively commonplace. This paper will describe the main aspects of the regulatory environment which will protect the public from future fraud within corporations and evaluate whether this act will be effective in avoiding future scandals.
The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to several corporate scandals that demonstrated the fraudulent and corrupt side of the corporate world. The act was drafted to improve the accuracy and reliability of corporate disclosures in order to protect employees, investors, and the general public by holding CEOs and CFOs accountable for the information reported to the public, among other requirements. In the wake of these corporate scandals, namely Enron, Tyco and WorldCom, the corporate world saw a sharp increase in public distrust and the need for a change became vividly apparent.
According to Investopedia (2015), “The two key provisions of the Sarbanes-Oxley Act are: 1. Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement. 2. Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to...