Advantages and Disadvantages of Sarbanes Oxley

Running head: ACCT 612 ESSAY 1

The Advantages and Disadvantages of Sarbanes-Oxley

Janet Whithers

Liberty University

The Advantages and Disadvantages of Sarbanes-Oxley

The Sarbanes-Oxley Act (SOX) of 2002 was enacted on July 30, 2002. The Act was brought about by a sequence of corporate accounting scandals that occurred in the late 1990’s and early 2000’s. This Act was introduced by Senator Paul Sarbanes and Representative Michael Oxley. Eleven titles are included in the Act with the main goal of the Act focusing on developing requirements for financial reporting in an effort to protect the truthfulness of data. Although the Act did not establish specific guidelines regarding tax, certain areas of the Act deal with tax practices. This essay will discuss the tax advantages of Sarbanes-Oxley as well as the disadvantages. It will also present my opinion of the success of Sarbanes-Oxley regarding fraud prevention and the protection of small businesses.

Tax Advantages of the Sarbanes-Oxley Act

The Sarbanes-Oxley Act (SOX) brought new light regarding taxes and auditing. It enforced new obligations for firms conducting both auditing for a business and tax services the firm provides. It prohibited registered accounting firms from engaging in tax compliance work prior to being pre-approved or approved by an audit committee of the firm. This approval process required firms to submit their proposed tax services to the audit committee prior to beginning any type of tax work for a client. This pre-approval or approval process can be considered an advantage in that it helps to regulate business practices. (Purcell & Lifson, 2003) Another advantage of SOX is that auditing committees meet more frequently since the implementation of the Act. These meetings bring forth an increase of greater detail in financial reporting which is something the auditing field was lacking. This detail requires greater disclosure of tax practices in companies. (Koehn &...