The SOX as it is called came into being on June 30th 2002. This was put into practice as a result of fraudulent practices in companies like World Com, Global Crossing and Enron. These companies were caught and eventually went on to admitting their misrepresentation of financial statements by billions and billions of dollars…
Inside the houses of the Senate, it is commonly called the Sarbanes-Oxley, Sarbox or is a United States Federal law which was enacted on July 30th, 2002. The act came into being because of a number of scandals that went on to affect a number of major corporate big shots. These included the Enron, Tyco International, Adelphia, Peregrine System and WorldCom. The scandals resulted in a loss of billions and billions of dollars and trampled share prices of the companies that were affected. Inadvertently, this followed by a major confidence lapse on security exchanges where the investors were concerned. The act has been named after a U.S Senator and a US Representative-Paul Sarbanes and Michael G. Oxley and was approved by a vote of 423-3 and by the Senate 99-0. While signing it and approving it President George W Bush, called it one of the most far reaching reforms of American business practices ever since Franklin D. Roosevelt.
The legislation marked the beginning of new and enhanced standards for most U.S public company boards and accounting firms. Privately held companies are not stipulated to comply with the act. It is home some 11 titles and section which vary immensely and cater to additional corporate board responsibilities to criminal penalties. It is the responsibilities of the Securities and Exchange Commission to implement the requirements to comply with the new law. This was done under the supervision of Harvey Pitt who ensured the adoption of a dozen other rules to implement the Sarbanes-Oxley Act.
However this is not the end and be it of all. There is still a lot of debate and argument in place over the prospect benefits of SOX. Supporters believe that the legislation has been extremely affective in restoring public confidence in the nation's capital markets and has helped strengthened corporate accounting controls. On the other hand, the opponents of the bill are of the view that this bill has taken away the competitive edge that the United States had against other financial markets.
Sarbanes-Oxley comprises of 11 sections each of which prescribe specific mandates and features essential for financial reporting. These sections are titled as follows:
1. Public Company Accounting Oversight Board (PCAOB)
2. Auditor Independence
3. Corporate Responsibility
4. Enhanced Financial Disclosures
5. Analyst Conflicts of Interest
6. Commission Resources and Authority
7. Studies and Reports
8. Corporate and Criminal Fraud Accountability
9. White Collar Crime Penalty Enhancement
10. Corporate Tax Returns
11. Corporate Fraud Accountability
The need to establish internal controls for the purposes of financial reporting and operational integrity has been specifically mentioned in the Sections 302 and 404 of the Sarbanes-Oxley act. An effective internal control system is essential to comply with Sarbanes-Oxley. An internal control system helps prevent the company from non compliance and will keep it updated about any failures in its system that may have to be addressed on an immediate basis. Internal controls can be of both types i.e. detective and preventive and are incumbent in deterring if regulatory requirements are being met. Henceforth, enough though and consideration must be plugged in, in developing and maintaining those controls.
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