Sarbanes Oxley Act of 2004
The Sarbanes-Oxley Act of 2002 was signed into law on July 30, 2002 by President Bush. The new law came after major corporate scandals involving Enron, Arthur Anderson, WorldCom. Its goals are to protect investors by improving accuracy of and reliability of corporate disclosures and to restore investor confidence. The law is considered the most important change in securities and corporate law since the New Deal. The act is named after Senator Paul Sarbanes of Maryland and Representative Michael Oxley of Ohio (Wikipedia Online).
Sarbanes-Oxley consisted of 11 different titles or sections. Title I is Public Company Accounting Oversight Board. It created a five member panel known as the Public Company Accounting Oversight Board, overseen and appointed by the Securities and Exchange Commission (Sarbanes-Oxley). The Board is to consist of two CPAs and three people that are not CPAs, but the chairman must be a CPA. The Board is to provide oversight of auditing of public companies while establishing auditing, quality control, independence, ethical standards (Arens 32-33). Public accounting firms that work on audits must register with the Board and pay a fee. Title I also included new auditing rules. Auditors must now retain paper work for seven years, have a second partner review and approval of audit reports, evaluate whether internal controls accurately show transactions as well as sales of assets, and describe any weaknesses or noncompliant internal controls. Public accounting firms that issue auditing reports for more than 100 companies are to be inspected every year. Accounting firms that issue audit reports for less than 100 companies must be inspected very three years. The Board can discipline or sanction accounting firms for what it deems to be negligent conduct (Conference of State Bankers Online).
Title II of the Sarbanes-Oxley Act is Auditor Independence. It creates new rules that auditors must abide by in order to keep their objectivity and accuracy. Auditors are now banned from performing most non-audit related services like bookkeeping, actuary services, and management consulting. An auditor may no longer be the lead auditor of a firm for more than five consecutive years. Auditors are now required to report all significant accounting policies and practices used in the audit, any different trea...
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... GE has said that new compliance costs are about $30 million. AIG has said that Sarbanes-Oxley is costing the company $300 million. Many European companies have also complained because they are forced to comply because they are on American stock exchanges. Surveys have also found that many companies are even thinking about going private to avoid compliance Sarbanes-Oxley (Bartlett 1-3).
Works Cited
Arens, Alvin, Randal Elder and Mark Beasley. Auditing and Assurance Services: An
Integrated Approach. Upper Saddle River, NJ: Pearson Prentice Hall, 2005.
Bartlett, Bruce. “The Crimes of Sarbanes-Oxley.” National Review 25 May 2004.
http://www.nationalreview.com/nrof_bartlett/bartlett200405250811.asp
Conference of State Bankers Online. Executive Summary of the Sarbanes-Oxley Act of
2002. 10 February 2005.
http://www.csbs.org/government/legislative/misc/2002_sarbanes-oxley_summary.htm
Sarbanes-Oxley Act of 2002. 107 Cong., 2nd sess. 2004.
http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=107_cong_ bills&docid=f:h3763enr.tst.pdf.
Sarbanes-Oxley Act. Wikipedia Online. http://en.wikipedia.org/wiki/Sarbanes-
Oxley_Act.
The audit committee must certify that the company’s auditors are independent. The audit committee must approve all professional services provided to the company by its independent auditors and ensure that auditors do not provide to the company any of the specifically prohibited services identified by SOX, such as bookkeeping services. The audit committee must receive and analyze key items of information from the independent auditors. These items of information include auditors’ analysis of critical accounting policies adopted by the
The SEC and the former Chairman Arthur Levitt Jr. were extremely concerned that the public accounting firms were violating the auditors independence rules addressed through the Securities Exchange Acts. Auditing firms now had dual citizenship in public companies: (1) they issued opinions on audited financial statements and (2) they participated in various consulting engagements for those same companies. Levitt's solution was to split auditing and consulting. The former Chairman was concerned that the public would lose confidence in the financial markets …… and the whole system would be jeopardized.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
The Institute of Internal Auditors. "Internal Auditing's Role In Section 302 and 404 of the U.S Sarbanes-Oxley Act of 2002." The Institute of Internal Auditors (2004): 1-13.
...he Sarbanes-Oxley act, which began with companies like Rite Aid abusing the deregulated system, are (1) the required attestation by the CEO and the CFO; and (2) better internal control mandates, procedures and documentation requirements.
Title III relates to corporate responsibility. Section 301 makes audit committee, which must be independent, responsible for appointment, compensation and oversight of any audit work performed by the audit firm. It also allows the SEC to de-list any issuer not in compliance with title III. Section 302 requires principal executive and principal financial officers to certify, in each annual or quarterly report that they review the report, the report does not contain any untrue statement of material fact or omission of a material fact and financial position and results of operations are fairly presented. The officers also certify that they are responsible for establishing and maintaining effective internal control, have evaluated the effectiveness
...ecognizes that technical compliance with particular GAAP rules may lead to misleading financial statements, and imposes an overall requirement that the statements as a whole accurately reflect the financial status of the company.” (Examiner Report, 2010, Vol. 3, p. 964) The choices made in accounting masked the real issues causing bankruptcy to become the only alternative for Lehman Brothers. Reporting accurate financial statements will allow counterparties to make knowledgeable decisions, regardless of the outcome. In 2002 the Sarbanes-Oxley Act was enacted by Congress as a reaction to the large amount of business related scandals, it consists largely of new rules and regulations for public accountant firms in an attempt to reduce fraud in accounting practices. The consequences of disregarding this injunction could result in fine and imprisonment, or both.
Results of SOX Compliance Surveys The SOX referring to the Sarbanes-Oxley Act of 2002, was enacted as a federal law in 2002 by Congress to curb massive accounting and corporate frauds that were happening in public companies before the act. Investors from companies that went public received heavy losses resulting from financial statements that were highly inaccurate and deceptive and some of these corporations included WorldCom, Adelphia, Tyco, and Enron (Grant and Vanac, 2005). As a result of shareholders’ losing billions of dollars from such deceptions, the confidence level of investors in the United States financial markets drastically declined. From this, the legislature decided to institutionalize controls in accounting, management, and
This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such scandals.
The scandals have made some big implications on the profession as a whole. One being the decision from the Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes-Oxley Act (SOA) of 2002, in April 2003 they voted to assume the responsibility for establishing auditing standards. The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) previously played this role.
...the government requirements of the US Sarbanes-Oxley Act and rules of the NYSE and are also applicable to it as a foreign private issuer (NYSE, 2014). Since IHG is a foreign private issuer it is required to disclose any important ways in which IHG’s corporate practices are different from those of the US companies (NYSE, 2014). These are as follows: Basis of regulation, independent directors, chairman and chief executive officer, committees, non-executive director meetings, shareholder approval of equity compensation plans, code of conduct and compliance certification (NYSE, 2014). Each year all Chief Executives of any US company must confirm to the NYSE that he or she is not aware of any violations by their company with regards to NYSE corporate governance listing standards (NYSE, 2014). These standards in the most part drive business decisions within the company.
In 2015, a study was done by the Centers for Disease Control and Prevention(CDC) and it was concluded that fifteen out of every one-hundred people over the age of eighteen smoker cigarettes in the United States. That means that an average of about 36.5 million people smoke cigarettes and out of that 36.5 million, 16 million people have a smoking related disease. Since 1964, more than roughly 20 million Americans have died from smoking cigarettes. This has caused major concern for many non-smoking and smoking American across the country. Non-smokers are not only healthier but also live longer lives because smoking cigarettes has such a negative effect on the human body medically.
Next to the creation of independence rules, regulators have tried alternative remedies to preserve the independence of auditors by implementing mandatory audit partner rotation and increased the audit committees’ responsibilities, independence, and expertise (Fiolleau, Hoang, Jamal, & Sunder, 2013). The independence rules are created by regulatory bodies (e.g. the Public Company Accounting Oversight Board (PCAOB)) and the Securities and Exchange Commission (SEC) and serve two public
One person dies every six seconds due to a tobacco related disease, which results in a shocking amount of ten deaths per minute. Tobacco is one of the most heavily used addictive products in the United States. Tobacco contains over 4,000 chemicals; approximately 250 are dangerously harmful to humans. Smoking is a major public health problem. All smokers face an increased risk of lung cancer, cardiovascular problems and many other disorders. Smoking should be banned due to the many health risks to the user, second hand related smoke illness, and excessive cost.