Sarbanes-Oxley Act of 2002
Bus 102 – Dr. Sean D. Jasso
John Chi 12/9/2010
Table of Contents
Table of Contents Introduction History of the Act Implementation Impact on Business Policy Analysis Conclusion Appendix References
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Corporate Scandals are business scandals that initiate from the misstatement of financial reporting by executives of public companies who are the ones trusted to run these organizations. Corporate scandals are derived in many ways and these misrepresentations happen through overstating revenues and understating expenses, overstating assets and understating liabilities, ...view middle of the document...
This paper covers the Sarbanes-Oxley Act, from its history to its current situation. Then it will cover the act’s implementation and its impact on the business world. It will be followed with an analysis of the policy’s effectiveness and will end with my opinions of the policy in the conclusion.
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History of the Act
The Sarbanes-Oxley Act of 2002 is legislation in response to the high profile financial scandals, such as seen with Enron and WorldCom. The scandals had immensely affected the stock market and commerce. It contributed to the dramatic decline of investors and the situation was termed as a “crisis of investor confidence” (Marshall and Williams). The purpose of this act is to protect shareholders and the general public from accounting errors and fraudulent business practices. The House of Representatives had passed the Oxley Bill in 2002. At the same time, Senator Paul Sarbanes had another proposal on the similar lines. He presented the bill to the Senate Banking Committee which passed the bill with a majority. Thereafter, both the proposals made by House of Representative Oxley and Senator Paul Sarbanes were reconciled to be formed into the one act. The Sarbanes-Oxley was signed into act on July 30th 2002. Without a doubt, the Sarbanes-Oxley is the single most important piece of legislation affecting corporate governance, financial disclosure, and the practice of public accounting since the US securities laws of the early 1930s. The Sarbanes-Oxley has had a tremendous effect on the public accounting industry. The accounting profession had been ridiculed by the corporate scandals that took place. All of the scandals involved questionable or outright criminal accounting practices, most of which could have been avoided if better internal and external oversight infrastructure had been in place. The purpose and intent of the Sarbanes-Oxley is to provide just that infrastructure and force corporate responsibility upon the industry, whether or not those firms would have taken on that responsibility willingly. Changes in the industry are still taking place as new demands for experienced auditors must be filled. The long-term effectiveness of these new regulations remains to be seen; only time will tell whether oversight can effectively manage corporate greed and accounting irregularities.
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The governmental agency tasked with implementing rulings on compliance of SarbanesOxley is the Securities and Exchange Commission (SEC). All the publicly traded companies are required to submit their annual reports of the effectiveness of their internal accounting controls to the SEC. The SEC sets deadlines for companies to submit their reports and also publishes rules on the requirements that they must comply by. Along with the SEC, is the FASB. The Financial Accounting Standards Board (FASB) is a private organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within...