Acc/561 Sox Act

Sarbanes-Oxley Act of 2002

Student

ACC/561

June 8, 2015

Professor

Sarbanes-Oxley Act of 2002

Introduction

The Sarbanes-Oxley Act of 2002 (SOX) was established after many corporate scandals such as Enron, WorldCom, and AIG cost investors billions of dollars. Financial fallout from these scandals reduced the American public's trust in the economy. The enactment of SOX in 2002 holds corporations to higher standards in reporting financial statements to internal and external users. Even though the standards for SOX are still evolving, the new regulatory environment generated in its wake will now protect the public and the market from fraud within corporations. This paper will discuss the main aspects of the SOX Act, its imposed requirements and its effectiveness in avoiding future fraud.

Passage of the SOX Act

Regulatory compliance has always been a part of doing business. There are many regulations developed to help protect the public from fraud and most businesses must meet certain industry standards. According to Kimmel, Weygandt & Kieso (2011) “Congress passed the SOX Act to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals” (p. 8). SOX was “named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects” (“The Sarbanes-Oxley Act Summary and Introduction,” 2006).

The SOX Act provides a solid set of internal controls and auditing standards that are aimed to discourage and punish corporate and accounting fraud, as well as corruption. SOX is designed to carry out these tasks by imposing severe penalties for civil or criminal acts, while protecting the interest of workers and shareholders. The SOX Act restores investor confidence by regulating financial auditing procedures and making them transparent to the general public and investors. In order for the Act to be successful enforcement is crucial. Only by fear of penalty or imprisonment will this act be enforceable....