Sarbanes Oxley-Advantages and Disadvantages

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Date Submitted: 03/09/2013 11:02 PM

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Executive Summary

Companies’ financial reporting has been analyzed continuously by legislation. U.S Securities and Exchange Commission has the solution to ensuring integrity and protection from companies when reporting their financial statements. SEC’s mission is add order, ethics and efficiency in the financial markets. To provide protection to shareholders and investors, the Sarbanes-Oxley Act was passed in 2002 by congress. The act was passed as a reaction to fraudulent activities by some renowned U.S Corporations such as WorldCom, Tyco, and Enron. Before SOX was in place, there were two accounting rules that were in place for public accounting firms. The two rules are the GAAP, which is the Generally Accepted Accounting Principle and GAAS, the Generally Accepted Auditing Standards. Credibility is the focus of both of these rules which are still enforced with the SOX Act. To gain a better comprehension of SOX, we have conducted an analysis on four topics related the Act. The four issues that we chose to focus on are: Audit committees of public company boards of directors, the CEO’s and CFO’s of public companies, SOX section 404 on Internal Control and the main Advantages and Disadvantages of SOX. Lastly we will provide a discussion as to why SOX cannot promise accuracy of financial statements and also look into reasons why CEO’s and CFO’s are paying close attention to this law.

Main Advantages and Disadvantages of SOX

The major reason for the formation of SOX is ethics or lack thereof. Most “gatekeepers” hopped to go the other way when faced with ethical decisions. The law was put into place as a reaction to numerous accounting scandals involving some of America’s most renowned firms such as WorldCom, Tyco and Enron. As with all laws there are advantages and disadvantages that exist with SOX. The law makes an effort at eliminating and reducing the incidents of financial frauds. Experts have agreed that this is one of the “most reaching laws since...