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Sarbanes Oxley Act - Essay Example

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Sarbanes Oxley Act

Correct recording and representation of material financial and operational facts about a company is critical for stakeholders to measure their interests into the company. Several industry standards are available for correct recording, calculation, and representation of this information. In addition, almost every country makes or adopts an accounting and internal control system which is mandatory for all the companies to follow. As time passes by, needs and requirements of new and comprehensive systems emerge that necessitates changes in the way traditional accounting and control systems operate.
The corporate world in United States took severe setbacks when scandals were surfaced about many large and multinational organizations in late 20th century. The companies like Enron, Tyco, and WorldCom were all victims of incorrect, ambiguous, unethical and inappropriate practices which remained hidden for a long period before they were finally identified and brought to the attention of the world. This sequence of events negatively affected shareholders' and general public's trust over the reliability and accuracy of financial information as published by companies. A general feeling was that of distrust, disbelieve, doubt and annoyance with the audit and internal controls systems of organizations. ...
The Sarbanes Oxley Act
The Sarbanes Oxley Act (also known as known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox ( 2007), was implemented in 2002 to regain public's trust in the accounting and reporting practices of companies in US, to reinforce investment confidence and protect investors by improving the accuracy and reliability of corporate information with regard to finance, operations and information systems. All public U.S. and international companies that have registered equity or debt securities with the Securities and Exchange Commission need to comply with Sarbanes Oxley act.
The section 302 of the act requires CEOs and CFOs to personally certify quarterly and annual financial statements. The first instance of sentencing a CEO for failure to comply with the act occurred in 2003. SOX violations can bring fines up to $5 million or 20 years in prison (IBM 2004).

5. Key Sections of the Act
The act is divided into multiple sections; eleven in all. A brief description of the sub-sections of the act is provided below:
5.1. Establishment of Public Company Accounting Oversight Board (PCAOB)
A Public Company Accounting Oversight Board (PCAOB) was established as a result of the passage of the act, to ensure that interests of the investors in public companies are secured, and the audit reports are developed and represent true and fair opinion on the affairs of the company ( 2002). The key functions and duties of PCAOB as documented in the law are as follow:
Register public accounting firms
Establish or adopt auditing, quality control, ethics, independence, and other standards
Conduct inspection of public companies
5.2. Auditor Independence
The 'independence' of the auditor ...Show more


This paper discusses one of the most important contemporary issues in accounting and controls field - the Sarbanes Oxley Act (SOX). The background information identifying needs and requirements for a comprehensive accounting and auditing framework have been discussed; which is then followed by the salient features of the act itself…
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Sarbanes Oxley Act Essay essay example
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