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Sarbanes Oxley Act - Essay Example

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Sarbanes Oxley Act

The degree of disclosure of financial information is also a main reason. Mostly the corporate running bodies do not find them answerable in front of any regulatory body; therefore they keep on trying 'innovative' ideas for which others have to pay. (Maclean, 2005)
Financial information in the form of audited accounts can prevent the system slipping into corruption (Sunlight is the best detergent), but it is not clear why, for example, a superior US financial reporting infrastructure did not help us detect Enron.
The Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (July 30, 2002), is a United States federal law also known as the Public Company Accounting Reform and Investor Protection Act of 2002 (and commonly called SOX or SarbOx). With the major financial reforms in most of the countries of the world the Sarbanes-Oxley Act was passed in the United states in order to deal with the issues such as establishment of the public company, the level of auditor's independence, proper monitoring of the accounting practices of the company under a board, corporate social responsibility and enhancement in the financial disclosure to the prescribed level by the act. The law is seen as the major reform in the after the New Deal passed in 1930. The act revolutionized United States securities laws. The House approved act with the majority of 423-3 and Senate by 97-0. The act increased the U.S. Securities and Exchange Commission powers.
The Sarbanes-Oxley Act's requires the companies to make their financial reports certify by the chief executive officers and chief financial officers. According to the act the Executive officers and directors are not allowed to take personal loans. The act prescribed the companies for the extended disclosure of the financial information in order to improve the shareholders and stakeholders accountability. The act also increased the jail sentence duration and increased the fine amount in case of violence of the securities law or misuse. The corporate executives misstating the financial information will also have to face increased sentence time duration and higher amount of penalties. The act also prohibited the audit firms to provide any services additional to that of the auditing to the companies they are working for. The compensation of the Chief executives and other higher executives are also required to be reported. The act also accelerated reporting of trades by insiders and prohibition on insider trades during pension fund blackout periods. (Wikipedia, 2006)


Maclean, P., (2005). Power Play - Robert McCullough was interviewed for an article covering Enron's role in the California power crisis and its aftermath, Portland Monthly, May 2005, Retrieved 05/005/06 from

Wikipedia, (2006). Sarbanes-Oxley Act, Retrieved 05/005 ...Show more


The scandals such as Enron and have given a new dimension to the corporate scandals in the history of United States. Due to the collapse of the Enron Corporation the notion of the off-balance financing or non-recognition of external funding on the financial statements of issuing company has gained much importance…
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Sarbanes Oxley Act essay example
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