Act of Sarbanes Oxley-Act of 2002

The Act

Jōn Marie Rogers

BUS 591: Financial Accounting & Analysis

Instructor: Vellota Drakopoulou

August 19, 2014

The Act

For years companies kept a record of their accounting and finances in notebooks or wrote down what they wanted to, made public what they wanted until numerous acts of corporate scandals came to the light. Congress passed the Sarbanes-Oxley Act, also known as SOX, in lure of corporate scandals. The scandals skewed reporting of selected financial transactions. Companies such as Enron, WorldCom and Tyco covered up or misrepresented a variety of questionable transactions, which resulted in huge losses to stakeholders. The act of 2002 has key components, criticisms that have surrounded the act, economic consequences as well as goals being achieved.

On July 30, 2002 this act was also created to minimize the occurrence of errors in the companies financial reporting. The intent of Sarbanes-Oxley Act is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. The act created new standards for corporate accountability as well as new penalties for acts of wrongdoing; changing how corporate boards and executives must interact with each other and with corporate auditors. The act requires all financial reports to include an internal control report. This is designed to show the company’s financial data accurate, but the company has confidence in them because adequate controls are in place to safeguard financial data.

Sarbanes-Oxley Act has many key components that have helped and hindered some companies; some do not like it because it has uncovered financial secrets. The bill was written to improve quality and transparency in financial reporting and independent audits and accounting services for public companies. It was also created to enhance the standard setting process for accounting practices, to strengthen the independence firms that...