Sarbanes Oxley Act

The Sarbanes-Oxley is a U. S. federal law that has generated much controversy, and involved the response to the financial scandals of some large corporations such as Enron, Tyco International, WorldCom and Peregrine Systems. These scandals brought down the public confidence in auditing and accounting firms. The law is named after Senator Paul Sarbanes Democratic Party and GOP Congressman Michael G. Oxley.

It was passed by large majorities in both Congress and the Senate and covers and sets new performance standards for boards of directors and managers of companies and accounting mechanisms of all publicly traded companies in America. It also introduces criminal liability for the board of directors and a requirement by the SEC (Securities and Exchanges Commission), the agency responsible for regulating the securities market in the United States.

Supporters of this law argue that the legislation was necessary and useful, while critics believe it will cause more economic damage than it prevents. The first and most important part of the Act establishes a new agency private non-profit, “the Public Company Accounting Oversight Board,” i. e. , a company responsible for reviewing regulatory, regulate, inspect and penalize companies for audit. Act also refers to the independence of the audit, corporate governance and financial transparency.

It is considered one of the most significant changes in corporate law, from the “New Deal” of 1930. Evaluate the effectiveness of regulations such as Sarbanes-Oxley Act over minimizing the corporate fraud and protecting investors and make one (1) suggestion for improvement. Fraudulent activity and accountants being held responsible for their actions was something that the government thought was important to make sure there was no falsification and fraud happening behind closed doors so to ensure that ethical standards were met the Sarbanes Oxley Act was brought to legislature.

This Act was enacted in 2002 which introduced major adjustments in corporate governance and financial practice. “The Sarbanes-Oxley Act created new standards for corporate accountability as well as new penalties for acts of wrongdoing. It changes how corporate boards and executives must interact with each other and with corporate auditors. It removes the defense of “I wasn’t aware of financial issues” from CEOs and CFOs, holding them accountable for the accuracy of financial statements. ” (Graziano, 2003)

The Sarbanes-Oxley Act prohibits accounting firms from providing certain consulting services to companies they audit. This is a step in the right direction, but I don’t think this goes far enough. Accounting firms which advise their clients how to boost profits, while at the same time trying to impartially judge their books, face an impossible conflict of interest. This reform does reduce this conflict and eases the pressure on the auditors to act as salesman for their firm’s other services. This law only limits the consulting services they can provide, it doesn’t prohibit them entirely.

Because auditors are hired and fired by the companies they audit, this puts them in a position of possibly casting negative judgments on those who hired them. This is most definitely a conflict of interest which can cause unconscious bias. The Sarbanes-Oxley Act of 2002, this law was put into force on November 15, 2004, tightened the reporting guidelines for corporations. It had a great impact on the financial, information technology, and management functions within a company, SOX compliance has increased transparency in business and financial transactions. (Everyman Business, 2011).

We see that Sarbanes-Oxley Act is a good move in the right direction forcing auditors to reform from bad accounting practices. However, we also see how we need to address the problems of unconscious biases. If we completely bar auditors from providing and consulting tax services to clients to boost profits, while they are trying to make judgments of their books, we can eliminate bias and conflict of interest. Given the oversight of the accounting profession by the PCAOB as a result of the Sarbanes-Oxley Act, assess the impact on auditing firms and the public accounting professions.

There is much more of an emphasis on training and certification of auditors to understand and be able to design processes that are in adherence to the SOX requirements (Michelman, Waldrup, 32, 33). These changes in accounting processes are just the beginning of the much broader and much more pervasive changes at the fundamental business level within companies. The changes required by SOX also force entirely new approaches to managing, reporting, sorting, and accessing financial information, often requiring new IT systems and processes as well.

The coordination of IT systems and processes, accounting and reporting, and the definition of entirely new business processes are all happening at the same time in many publicly-held companies in the U. S. through even 2009. The exponential growth of Indian outsourcing companies who have expertise in Business Process Management (BPM) have correspondingly seen an increase in their business, as many smaller American publicly-held companies do not have the people or the expertise to get their processes, systems, IT plans and accounting and reporting functions in compliance with the SOX standard in any meaningful period of time (Radtke, et. l. )

As a result, many accounting professionals also must manage outsourcing contracts with companies who specialize in BPM and SOX process-redefinition. Finally, there is also more concentration on oversight at the corporate level, with companies including Boeing having a Chief Compliance Officer who reports directly to the CEO to ensure GRC Initiatives gain the necessary resources to be effective. Accounting and auditing will continue to be significantly influenced by SOX for the foreseeable future as the need for compliance grows.

Offer your opinion as to whether or not you believe the accounting profession is better off being self or government related with regard to a firm’s ability to detect and report corporate fraud. In my opinion I believe the accounting profession is better off government related with regard to a firm’s ability to detect and report corporate fraud as opposed. In my readings about WorldCom, after investigation it was discovered the total amount of fraud had grown to $11billion, the largest accounting fraud in history.

It started from an unsupported entry of $500 million in computer acquisitions. Major frauds often begin at the top. I worked for a private owned company where the finance manager was committing fraud by writing checks to herself, paying employees under the table. The fraud was never discovered because the auditors that came in were on the company’s side any misstatements found were not reported. Predict whether or not corporate fraud will be reduced, increase, or remain the same based on requirements for audits of publicly traded companies as prescribed in the

Sarbanes-Oxley Act. I predict fraud will be reduced based on the requirements for audits of publicly traded companies as prescribed in the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to report management’s assessment of the effectiveness of internal control. The Act also requires auditors to attest to the effectiveness of internal control over financial reporting.

This evaluation, which is integrated with the audit financial statements, increases user confidence about the future financial reporting, because effective internal controls reduce the likelihood of future misstatements in the financial statements.