Sarbanes-Oxley Act Of 2002: Case Study
Table of Contents
Abstract
Congress passed the Sarbanes-Oxley Act of 2002 in response to financial scandals perpetrated by Enron and WorldCom, and it has had a strong impact on corporate accounting and financial decision-making. This law was intended to enhance financial transparency for publicly-traded companies. The Sarbanes-Oxley Act established new regulations and penalties for public companies to protect investors. In addition, it created the Public Company Accounting Oversight Board, or PCAOB, which is in charge of overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. This new law has impacted accounting …show more content…
It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.
3
Corporate Responsibility
Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company 's "principal officers" (typically the Chief Executive Officer and Chief Financial Officer) certify and approve the integrity of their company financial reports …show more content…
Sarbanes Oxley act has a significant impact in the corporate governance. Companies are no longer able to manipulate inventories or stocks of products or sales as there is a real time reporting system in place. Sarbanes Oxley act ensures standard data entry systems. Sarbanes Oxley Act stimulates an ethical culture because it enforces top management transparency, employee accountability, and whistleblower protection. Some of the issues with Sarbanes-Oxley Act are in the nine years since the enactment of the law, corporations have lobbied to relax or abolish because of perceived disadvantages the law. Also, the law has led to increased auditing costs. For instance, Section 404 of the Sarbanes-Oxley Act requires corporations to create internal controls that separate its corporate accounting department from its corporate finance division to avoid conflicts of interests. This section requires the use of outside independent auditors to inspect annual internal control reports. Many corporations complain that this section of the Act has imposed unnecessary fixed costs that harm profits and hurt shareholders ' investments more than protect them. Conservative critics of Sarbanes-Oxley complain that the law constitutes an intrusion by the federal government into corporate law, an area of legislation traditionally regulated by each
Abstract
Congress passed the Sarbanes-Oxley Act of 2002 in response to financial scandals perpetrated by Enron and WorldCom, and it has had a strong impact on corporate accounting and financial decision-making. This law was intended to enhance financial transparency for publicly-traded companies. The Sarbanes-Oxley Act established new regulations and penalties for public companies to protect investors. In addition, it created the Public Company Accounting Oversight Board, or PCAOB, which is in charge of overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. This new law has impacted accounting …show more content…
It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.
3
Corporate Responsibility
Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company 's "principal officers" (typically the Chief Executive Officer and Chief Financial Officer) certify and approve the integrity of their company financial reports …show more content…
Sarbanes Oxley act has a significant impact in the corporate governance. Companies are no longer able to manipulate inventories or stocks of products or sales as there is a real time reporting system in place. Sarbanes Oxley act ensures standard data entry systems. Sarbanes Oxley Act stimulates an ethical culture because it enforces top management transparency, employee accountability, and whistleblower protection. Some of the issues with Sarbanes-Oxley Act are in the nine years since the enactment of the law, corporations have lobbied to relax or abolish because of perceived disadvantages the law. Also, the law has led to increased auditing costs. For instance, Section 404 of the Sarbanes-Oxley Act requires corporations to create internal controls that separate its corporate accounting department from its corporate finance division to avoid conflicts of interests. This section requires the use of outside independent auditors to inspect annual internal control reports. Many corporations complain that this section of the Act has imposed unnecessary fixed costs that harm profits and hurt shareholders ' investments more than protect them. Conservative critics of Sarbanes-Oxley complain that the law constitutes an intrusion by the federal government into corporate law, an area of legislation traditionally regulated by each