The purposes of this research paper are to show how the Sarbanes-Oxley Act of 2002 contributed to holding corporate executives accountable for their actions, examine the origin of the Act, and perceived advantages and disadvantages of the Act.
The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002, (commonly referred to as SOX), is a U.S. federal law setting financial reporting standards for U.S. publicly traded companies and accounting firms. Named after U.S. Senator Paul Sarbanes and U.S. Representative Michael Oxley.
SOX was created in response to corporate financial scandals (Wright, 2008). SOX was signed into law by President George Bush on July 30, 2002 (Kimmel, Weygandt, & Kieso, 2011).
The 11 titles of the Sarbanes-Oxley Act of 2002
Title I - The Public Company Accounting Oversight Board (PCAOB) was created. The
PCAOB supervises companies auditing publicly traded companies (PCAOB, 2004).
Title II - regulates auditing firms' behavior.
Title III - CEO and CFO must certify the accuracy of financial statements.
Title IV - corporations must make financial transactions and relationships that may influence the company's finances public.
Title V - regulates behavior of security analysts.
Title VI - SEC defines conditions which a person may be prohibited from practicing as a broker, advisor, or dealer.
Title VII - Comptroller General and SEC perform studies and report their findings.
Title VIII - addresses securities fraud.
Title IX - addresses mail fraud and wire fraud.
Title X - CEO must sign company tax return.
Title XI - addresses record tampering and interfering with official proceedings
(The Institute of Internal Auditors, 2004).
Perceived advantages of SOX
1. Protects "whistle blowers."
2. Ensures reliable financial reporting.
3. Impacts corporation governance.
Perceived disadvantages of SOX
1. Increased auditing costs
2. International competitive disadvantage
3. Political concerns