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Sarbanes Oxley Act Essay

940 words - 4 pages

The Sarbanes-Oxley Act was passed by Congress in 2002 in an effort to prevent and punish corporate corruption and to repair investor confidence. The act imposes on all publicly traded corporate organizations the requirement of mandatory accounting oversight, detailed disclosure requirements and criminal liability for noncompliance or violations of the act. Sarbanes-Oxley is named for Sen. Paul Sarbanes and Rep. Michael Oxley, the act's primary authors. The law was overwhelmingly passed by both houses of Congress in response to the widespread public and government outrage against corporate abuses. Fraudulent accounting practices and misleading financial reports issued by such corporate ...view middle of the document...

The act requires faster reporting of insider trades to the SEC than previously required. Any insider trades must be reported within 48 business hours of the trade. The act also bars any insider trades during retirement fund blackout periods. Blackout periods occur when the fund experiences major changes. Participants are prohibited from changing their investment options during this blackout period.
SOX established the Public Company Accounting Oversight Board (PCAOB), which oversees auditing firms and determines auditing procedures and policies. The Sarbanes-Oxley Act requires companies to adhere to more stringent financial reporting criterion, including reporting off balance sheet transactions. It also sets timeline requirements for financial reporting. Sarbanes-Oxley now clearly places responsibility on corporate executives for the content of a company's financial reports issued to investors. Executives must certify that they have reviewed the reports and that the reports contain no materially false statements or omissions. Financial reports must not be misleading; they must impart a clear and accurate portrayal of the company's financial condition. Although executives need not draft the reports, they must implement and monitor internal controls that affect their preparation. Since the Public Company Accounting Oversight Board was created 10 years ago by the Sarbanes-Oxley Act, the U.S. system of auditor oversight has been fundamentally reformed to better protect investors. The model has spread around the world (Bainbridge, 2007).
The United States has the most robust, liquid capital markets in the world, and they have propelled our nation to a level of economic development and stature unequalled in human history. These markets work because investors have trust in the financial system and the information it delivers to them. The Sarbanes-Oxley Act of 2002 came in the wake of several high-profile corporate accounting scandals, including those involving Enron, WorldCom and Tyco International. Confidence in publicly traded...

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