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ACC 410 The Sarbanes Oxley Act of 2002

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The Sarbanes Oxley Act of 2002
The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002
The Act & Impact
ACC 410,
Abstract
The Sarbanes-Oxley Act, officially named the “Public Company
Accounting Reform and Investor Protection Act of 2002”, is recognized
to be the most noteworthy U.S. federal disclosure and corporate
governance legislation since the Securities Act of1933 (the Securities
Act) and the Securities Exchange Act of 1934 (the Exchange Act).
Furthermore, the provisions of the Act are momentous enough that it is
considered by many to be the most significant change to the federal
securities laws in the U.S. since the New Deal.
The Sarbanes-Oxley Act of 2002
The Act & Impact
The Sarbanes-Oxley Act of 2002 was signed into law following the wake
of corporate financial scandals. Many large companies such as Enron,
WorldCom, and Arthur Anderson were affected. The Act provides a solid
set of government rules that are aimed to discourage and punish
corporate and accounting fraud, as well as corruption. SOX is designed
to carry out these tasks by imposing severe penalties for wrong doings,
while protecting the interest of workers and shareholders. The stated
purposed to protect investors is maintained by improving the accuracy
and reliability of corporate disclosures, imposing strict rules for audits
and auditors of publically traded companies, preventing insider trading
and deals, requiring companies to adopt strict internal controls, and
increasing the penalties for white collar crimes as they relate to investor
fraud.
The Sarbanes-Oxley Act of 2002 is often best understood, not as a piece
of legislation centered on a new concept of regulation, but as a process
which mandated that many major reforms be implemented as soon as

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possible. SOX became effective on July 30, 2002 as a new penal law, 18
U.S.C. #1348. (Zameeruddin, 2005) This précised scheduled was
specified by congress and often meant within 30 days. As a result, the
Enron and WorldCom debacles provided the forward motion of public
outrage. This forced into effect some of the most readily available reform
proposals for publically traded companies, of which many had existed for
years without sufficient political imperative to be enacted. (The Institute
of Internal Auditors. “The Sarbanes-Oxley Act of 2002: Effect on Audit
Committees at Publically Traded Companies.” January 2004. Accessed
May 31, 2012 from: http://www.theiia.org/.)
New levels of auditor independence and personal accountability for
CEOs and CFOs are provided by the Act. Additional accountability for
corporate Boards, as well as increased criminal and civil penalties for
securities violations, increased disclosure regarding executive
compensation, insider trading and financial statements are also
presented under SOX. (The Institute of Internal Auditors: “The Sarbanes-
Oxley Act of 2002: Effect on Audit Committees at Organization Not
Publicly Traded.” January 2004. Accessed May 31, 2012 from:
http://www.itaudit.org/)
The provisions of the act apply, not only, to U.S. companies that are
required to file annual reports with the Securities and Exchange
Commission (SEC), but also to foreign companies that are listed in the
U.S. or obligated to report to the SEC periodically. Title I of the
Sarbanes-Oxley Act stipulates that a new Public Company Accounting
Oversight Board (PCAOB) will be appointed and overseen by the SEC.
The PCAOB board consists of five full-time members who are
responsible for the oversight and investigations of audits and auditors of
public companies. These members are also accountable for penalizing
violators of laws, regulations, and rules. The PCAOB is funded by fees
paid by all publicly-traded companies based on their market
capitalization. (The Institute of Internal Auditors. “The Sarbanes-Oxley
Act of 2002: Effect on Audit Committees at Organizations Not Publically
Traded.” January 2004. Accessed May 31, 2012 from:
http://www.itaudit.org/)
Why was the Sarbanes-Oxley Act established?
SOX was enacted during a time of remarkable turmoil amongst
corporate America. Following the collapse of Enron Corporation in 2001,

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