What is Sarbanes-Oxley?
On July 30, 2002, the Sarbanes -Oxley Act of 2002 was signed into federal law. The stated purpose of the law is "To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the security laws, and for other purposes."(SOA,2002)
What does Sarbanes Oxley Address?
Establishes new standards for Corporate Boards and Audit Committees
- Establishes new accountability standards and criminal penalties for Corporate Management
- Establishes new independence standards for External Auditors
- Establishes a Public Company Accounting Oversight Board (PCAOB) under the Security and Exchange Commission (SEC) to oversee public accounting firms and issue accounting standards (Web,1)
The effect of the law is sweeping, long term changes in the way publicly traded companies manage auditors, financial reporting, executive responsibility and internal controls. While numerous laws and regulations governing the conduct of public companies already exist, SOX is considered the most substantial piece of corporate regulation since the securities laws of the 1930's. The creation of SOX followed one of the most turbulent periods in US corporate history. The very public collapse of corporate giants like Enron and WorldCom damaged the fundamental trust in US corporations and cost investors billions of Dollars.
As the last resort of the corporate control system, the legislative control loop has the ability to affect all the other loops. The Sarbanes-Oxley Act, signed by President Bush on July 30, 2002, was the most recent response from this level, attempting to address the failures of the other feedback loops.(Web,2)
SOX was the government’s response. By mandating the
requirements for reliability and usefulness of financial reporting, SOX is designed to renew investor’s trust and understanding of public corporation financial reporting. (McCosh,1976)
The basic implications of the Act for accountants are summarized below..............
