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Tha Sarbanes Oxley Act of 2002




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Runninghead:Sarbanes-Oxley Act of 2002 1
Sarbanes-Oxley Act of 2002
Lisa Mains
Kimberly Warren
March 17, 2014

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Runninghead:Sarbanes-Oxley Act of 2002 2
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (SOX) resulted from the consequences of the financial
disasters perpetuated by financial institutions such as Enron, Worldcom, and even the Savings
and Loan debacles that served to fool and cripple the financial markets. As a result of their
deceptive accounting practices, many investors lost millions of dollars. SOX was signed into law
by President George Bush on the 30
day of July in the year 2002. The Act was lawmakers and
legislators reaction to highly publicized financial reporting scandals like the ones involving
Enron and WorldCom that had shaken investors' confidence in financial reporting and auditing
and negatively influenced the quality of earnings from improper recognition of different items
such as operational expenses on the income statement or liabilities on the balance sheet. The
intended purpose of the SOX Act is to protect investors by improving the accuracy, and
reliability of corporate financial reporting disclosures made pursuant to the securities laws, and
for other purposes (James, 2006). The provisions of the SOX directly or indirectly affects several
business professionals, including CPAs, managers and executives, financial statement analysts,
and even lawyers. The provisions of the SOX are described in eleven titles, each one including
numbers of subsections. SOX also offers harsh penalties for SOX violations, which constitute
violations of the Securities Act of 1934 (James, 2006). The Sarbanes-Oxley Act of 2002 will be
explored and described and its intended impact to prevent unethical accounting practices
addressed as well as an evaluation of whether SOX will be effective in conclusion, in the
paragraphs that follow.
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

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Runninghead:Sarbanes-Oxley Act of 2002 3
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 requires corporate management to be accountable for both fraud
prevention and detection. Likewise, corporate management is responsible 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 or retaliated against for speaking out
against the fraudulent activity within the company.
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 be required to exercise more reported involvement
in the internal controls of financial reporting, but also refrain from exerting undue influence on
accountants in the audit process and violating the code of ethical conduct between senior
financial officers and the financially adept audit committee; moreover, attorneys and audit
committees were also given initiatives for proper conduct and autonomy as well respectively.
Corporate records were expected to list management disclosures regarding off-sheet balances and
aggregate contractual obligations, as well as certifications for disclosure in companies’ quarterly
and annual reports; furthermore, relevant documentation for the auditing process was not to be
discarded as it had been previously before. To further assist the SEC with the implementation of
the goals and tenets of SOX, the Public Company Accountancy Oversight Board (PCAOB) was

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