Sarbanes Oxley Act Essay

1258 words - 6 pages

“Sarbanes-Oxley (SOX) Act and its impact on corporate America”
In order to understand why the Sarbanes-Oxley Act came to be, it’s important to acknowledge some of the mistakes made by some companies that led to the creation of this Act. The Sarbanes-Oxley Act was originally enacted in the wake of the Enron scandal, but then pushed to congress after a series of high-profile financial scandals followed Enron, including WorldCom and Tyco that rattled investor confidence and the level of confidence that the public held in corporate America (Rouse). Enron Corporation was one of the largest energy companies in the world, marketing primarily electricity and natural gas but also provided financial ...view middle of the document...

Now, all public companies must comply with SOX. The act requires the upper management of publicly traded companies to be personally responsible for all financial information and statements. This was intended to make senior management monitor information so that American public would regain trust in corporate America governance. The act was designed to protect investors by improving the accuracy and reliability of corporate disclosures, and securities laws (Rouse).
The Sarbanes-Oxley Act not only affects the financial side of corporations, but also IT departments charged with storing a corporation's electronic records. The act is not a set of business practices and does not specify how a business should store records; rather, it defines which records should be stored and for how long. SOX states that all business records, including electronic records and electronic messages, must be saved for "not less than five years” (Welch). The consequences for noncompliance are fines, imprisonment or both. With security being a main issue, it requires open communication between upper management and security staff.
The Sarbanes-Oxley act has had a tremendous impact on corporate America. Some of the major changes that many corporations underwent relied on technology and most of the systems required can be very expensive but necessary none the less. However, many companies, through the use of technology, training, and outside expertise, are able to cut unnecessary costs. One of the benefits of complying with the Sarbanes-Oxley Act is that security of internal controls will be intact. It will also promote those corporations who comply in a positive light gaining trust, not only for a particular firm, but also for corporate governance as a whole (Welch).
The Sarbanes-Oxley act became one of the most expensive and time consuming pieces of legislation in the history of corporate America but of the many sections it contains, Sections 302, 401, 404, 409, 802 and 906 are considered to be the most important (www.soxlaw.com). Section 302 states that “periodic statutory financial reports are to include certifications that: The signing officers have reviewed the report, the report does not contain any material untrue statements or material omission or be considered misleading, the financial statements and related information fairly present the financial condition and the results in all material respects, the signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings, a list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities, and any significant changes in internal controls or related factors that could have a negative impact on the internal controls. Organizations may not attempt to avoid these requirements by reincorporating...

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