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The year is 2011, and this country has been nearly crippled financially with the corporate accounting scandals. One of the most famous is the scandal of Enron, Waste Management, WorldCom, Qwest Communications, Health South Corporation, and then the infamous Bernard L. Madoff Investment scandal. The Medoff Ponzi scheme robbed millions of hard working people of the savings. This is considered to be the largest investment fraud ever committed by one person. This all lead to the new and enhanced accounting standards which is called the Sarbanes-Oxley Act of 2002.
Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required.
The Sarbanes-Oxley Act of 2002 ...view middle of the document...
This wide ranging legislation has established new and enhanced standards for all U.S Public Company Boards, management, and public accounting firms.
This new Public Company Accounting Oversight Board is responsible for overseeing, regulating, inspecting, and then disciplining any accounting firms in their roles as an auditor of public companies, and enhanced financial disclosure (Consulting, 2011).
Examine why the new enhanced standards are necessary.
This new standard is mainly in place to help prevent some of the infamous scandals previously mentioned. By definition according to Wikipedia, â€œAccounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilitiesâ€ (Encyclopedia, 2011).
In a simpler version someone was doing unethical things, and they were doing their very best to cook the books, to just cover up the financial facts. Thousands, if not millions of Americans lost everything, their jobs, homes, and worst their families. This was all done in the name of greed and profit for some very unethical characters.
Evaluate the benefits and costs of the SOX.
When a company is new to accounting practices, the cost and learning curve initially will be high. This will ensure that they are brought up to standards that the federal securities require. Even though much of the upfront cost is high, the benefits of a strong controls and regular review will be obvious and a significant cost saving over time. Lastly what is the most important benefit of the SOX is the restoration of public trust, and confidence in financial reporting (Goelzer, 2005).
Compare and contrast the reactions of companies and companiesâ€™ executives to the SOX and its requirements.