The Sarbanes-Oxley Act

Congress enacted the Sarbanes-Oxley (SOX) Act of 2002 to restore investor confidence by requiring public companies to strengthen corporate governance through several mechanisms, including enhanced disclosure on Internal Control Over Financial Reporting (ICFR). As claimed by regulators, the disclosures on the effectiveness of ICFR are aimed at improving the quality of financial reporting, which would, in turn, reduce the information asymmetry for investors in U.S. capital markets” (Donaldson). Sarbanes- Oxley named after its creators, Senator Paul Sarbanes, D-Md and Congressman Michael Oxley, R-Ohio. Enacted in 2002 with the purpose to crack down on corporate fraud. The implementation of Sarbanes-Oxley led to the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting industry. It was created to eliminate corporate fraud, and it put in place a ban on company loans to executives while also giving job protection to whistleblowers. Before SOX was put into place the accounts were a self-regulated profession, such as medical professionals and lawyers. This is what led to the fraudulent actions of major institutions, people can be greedy, and they need checks and balances to ensure the fidelity of the firm. There are criminal enhanced penalties for corporate fraud and related misdeeds, this brings justice to the sector as well as working as a deterrent for additional immoral

However, the application of SOX has brought on regulations that public companies must put in place and follow to prohibit these unethical occurrences. One major advantage for associated with SOX is that more thorough audits are being conducted by auditing firms. Audits being conducted more thoroughly will provide accuracy and an increased reliability of financial data. This will affect taxes in a positive way and provide firms with an advantage. Causholli, Chambers, and Payne (2014) suggest that prior to the implementation of SOX in 2002, “an auditor’s opportunity to sell additional non-audit services in the subsequent year, coupled with the client’s willingness to buy services, intensified the economic bond between auditor and client, in turn reducing auditor independence and the quality of financial reporting” (p.681). The regulation of auditor provided non-audit tax services has increased the reliability of tax and financial reporting within companies. Seetharaman, Sun, and Wang (2011) explain that “in a post-Sarbanes-Oxley environment, the benefits of auditor-provided non-audit tax services (NATS) seem to manifest themselves in higher quality tax-related financial statement management assertions” (p. 677).

The swath of change brought about by Sarbanes-Oxley is wide and deep. The primary changes resulted in the creation of the Public Company Accounting Oversight Board, the assessment of personal liability to auditors, executives and board members and creation of the Section 404. That section refers to required internal control procedures, which did not exist before Sarbanes-Oxley. Public companies are now required to include an internal control report with their annual audit. The oversight board is responsible for monitoring public accounting companies, and works with the SEC. Based on size, accounting forms undergo reviews every one to three years. In addition to the board reviews, public accounting firms now carry personal liability for their

On July 30, 2002, The Sarbanes-Oxley Act of 2002 (SOX) was signed into law by President Bush. "The Act mandated some reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud" (SEC.Gov. 2013 P. 1). The SOX Act also created the Public Company Accounting Oversight Board (PCAOB) in response to numerous failures of the profession to fulfill its trusted role; to oversee the activities of the auditing profession (SEC.Gov, 2013. The auditing of financial statements is required for the protection of public investors; however the question that arises is whether or not all PCAOB members should be taken from the investments communities that use audited financial statements. The remaining of this

In the wake of the major financial scandals, that occurred in 2001 and 2002 the United States Congress passed the Sarbanes Oxley Act (SOX) of 2002. These financial scandals adversely affected the public’s trust in the stock market, therefore passing the SOX helped investors to regain trust in investing in the stock market. Prior to the SOX being passed “neither management or auditors of publicly traded companies were required to evaluate, audit, or publicly report on the effectiveness of internal controls over financial reporting” (Kinney & Shepardson,

The goal of the Sarbanes-Oxley Act was to deter and prevent corporations from committing financial fraud, protect shareholders and regain the confidence the public had in financial statements that the released (Ferrell, Hirt, Ferrell, 2009). The act did put additional duties on the corporate accounting departments as well as the auditing firms that monitored these corporations. Prior to the law’s enactment, corporations largely had auditors and financial monitors on staff. The law requires that an external auditing firm review not affected by conflict of interest, audit and monitor the financial records of the corporation. While audits are largely seen in a negative manner, having an annual audit done by an outside firm will allow for

Sarbanes Oxley Act is focused towards identifying accounting frauds in different public companies. This paper discusses about various reasons for the introduction of Sarbanes Oxley Act and causes that has been overlooked.

Since the passage of the Sarbanes-Oxley Act (SOX) of 2002, a large body of evidence has accumulated on the costs this legislation has imposed on public companies in the United States. Estimates of the direct costs of the law have been fairly straightforward to measure, but the indirect costs of the legislation like incremental audit and non-audit fees, additional audit effort and additional internal control audit expenses like payroll and technology are harder to estimate due to lack of detailed data on these expenses. Since audit fees had been

The Sarbanes Oxley Act allowed the federal government to have durable guidelines of corporate governance along with inspecting the ethics for public companies. SOX creates the boundaries in regards to accounting companies and what they can offer These are services like: consulting, allowing corporate auditing organizations more responsibilities and accountabilities, enforcing public companies to make improved public releases - such as core financial controls assessment and permitting improved criminal and civil sanctions (Kessel, 2011). Moreover, SOX created the Public Company

The Sarbanes-Oxley Act of 2002 was designed to create oversight and decrease the amount of corruption in the accounting industry. The Article includes a number of provisions dealing with financial reporting, conflicts of interest, corporate ethics and the oversight of the accounting profession, as well as establishing new civil and criminal penalties.

The goals of the Sarbanes-Oxley Act are expansive, including the improvement of the quality of audits in an attempt to eliminate fraud in order to protect the public’s interest, as well as for the protection of the investors (Donaldson, 2003). Prior to the implementation of SOX auditors were self-regulated with consumers reliant on their honesty and integrity. However, the auditing profession failed at self-regulation, thus necessitating the implementation of a security measure that would protect the investors and the

Audit planning details change from client to client, no matter the complications presented. Each evolution of society’s business world prompts rule makers to update authoritative accounting standards in order to allow for changes, auditors are then responsible to certify their client’s financial reports adhere within compliance according to current authoritative standards. Many cite the Sarbanes-Oxley Act (SOX) of 2002 as being legislation that has had the most profound impact on the auditing profession; incidentally, an auditor’s job is to certify financial statements are a fair representation of a company’s financial position, at a given point in time, using current acceptable standards. Society deems auditors as gatekeepers and expects the auditing profession to find and report fraud, prevent fraud, and make certain financial statements are true, fair representation of a company’s financial position. Even though the rules, regulations, and generally accepted accounting principles can sometimes be difficult to find and translate, the public expects auditors to prevent events such as those that sparked SOX. The Financial Accounting Standards Board (FASB) developed the Accounting Standards Codification (ASC) that became the authoritative source July 2009 (FASB, 2009). Perhaps the hardest impact auditors experience with FASB ASC is attempting to ascertain clients’ FASB ASC references in disclosures on financial statements; “management cannot delegate this function to the

The monetary costs of compliance with the Sarbanes Oxley Act of 2002 are difficult enough to quantify. However, there are other qualitative costs that are even more difficult to measure. Such as, the compliance costs the public accounting firms by increasing auditor workloads (Jahmani, Yousef; Dowling, William A., 2008). The government bureaucracy increases tax payer burdens due to increases in government regulating agencies.

The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence.   In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting.   Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a

As the times change so does the expectations expected from auditors, previously auditors would only look at books but now there is a focus on credibility and integrity. The purpose of regulation is to ensure quality, auditors seek to provide a service which meets the requirements to both the customer and the