Running head: SARBANES-OXLEY ACT OF 2002

Sarbanes-Oxley Act of 2002

Gabriella Goodfield
ACC/561
October 19, 2015
Myrtle Clark

SARBANES-OXLEY ACT OF 2002

Sarbanes-Oxley Act of 2002

Introduction
The Sarbanes-Oxley Act of 2002 is also call SOX. The purpose of the SOX is to protect
investors from fraud and other accuracy disclosures. For those who are found in committing
fraud SOX has foreseen the correct punishment Thirteen years later is the SOX effective in
avoiding fraud. Will it be effective in avoiding fraud in the future? The SOX has regulations
that regulate the environment. These regulations will be review.
SOX Background
In the years, 2001 and 2002 the largest of the US corporate accounting fraud were
committed. The most famous of the account ting fraud was Arthur Andersen and Enron. Senator
Paul Sarbanes and Representative Michael Oxley in 2002 drafted the Sarbanes-Oxley Act 2002.
The main purpose was to protect investors by improving accuracy of corporations. In addition,
the Act took away the I did not know anything about it from top management and CEOs. Then
making the top management and the CEOS responsible for the action of the company.
Regulatory Environment
Regulations is an extremely important part of corporations. These regulations tells the
corporations what they can do and what they cannot do. It is these regulations that protects the
public from frauds. One way to protect the public is to have corporations to perform an audit.
The audit can be internal and external. The SOX wants the both types of audits
Corporations that are in the US today are require to preform audits. The SOX requires that
a corporate come out with their annual reports that they must report the purpose of their internal
controls. In addition, The registered accounting firm shall, in the same report, attest to and
report on the assessment on the effectiveness of internal controls structure and procedures for

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financial reporting(sox law, n.d). This refers to an audit. The person who performs the audit is
call an auditor.
There are two types of auditors. There is the internal auditor and this auditor is an
employee, usually the accountant, of the corporation. The second type of auditor is the external
auditor.
A corporation would have an audit committee. The Sarbanes-Oxley Act 2002 in the US
(2002) requires that all members of the audit committee be independent. Companies must
disclose whether or not the audit committee includes at least one financial expert (lexicon, n.d).
This committee oversees and serves to check the financial statement of the corporation. The
financial is require to have the knowledge and expertise of the financial statement i.e. education.
In addition the understanding of the accounting standard and principles that are made by the
FASB, GAAP, SEC, and Sarbanes-Oxley Act 2002. According to Harvey Coustan, when he
interview audit committee members on the Section 301 requirement on selecting an external
auditor, and referring to cost Accordingly, they thought the audit committees hiring the
external auditor might relieve some pressure on audit fees( Coustan, 2004, pg. 46 para 2).
In section 802 of the Sarbanes-Oxley Act 2002 is on the Criminal Penalties for Altering
Documents(sox law). In this section the following is found and explain. Fines and/ or 20 years
of imprisonment for altering, destroying, militating, concealing, falsifying records, documents or
tangible objects with intent to obstruct, impede or influence a legal investigation(sox law, n.d).
As for the accountant who knowingly go against the requirements for the maintenance of the
audit or review papers, there is imprisonment up to 10 years.
SOX Effectiveness

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SOX effectiveness is seen when the CEOs and/ or officers of the corporation is require, by
the SOX, to review the reports and financial statements. These officers are now more active in
the review the reports. The officers have make sure that there is no misleading information, false
statements, or missing information. Ensure that the financial statement truly present the actual
financial conditions in the company. The officers are responsible for the internal controls and
evaluate them. This is just a few item in Section 302. Where is the effectiveness? The officers
would actual do that is require by the Section 302. In fact, fraud in major corporations is down
since the SOX has been in act.
SOX and the SEC by providing the whistleblower a way to inform the SEC what is going.
Whistle Blowers still fear that they might be reveal but the government is working on ways that
can provide more protection.
The effectiveness of the SOX is little to none when it comes to the small business. The act
itself does not provide provisions for the size of the company. The costs is an example. The audit
is costly and most small business have a hard time paying for the audit. According to Curtis
Nicolls Indeed, some small companies are reportedly going privately to avoid SOXs reporting
requirement (Nicolls, 2014).
SOX effectiveness in the future
SOX effectiveness depends on if they penalties are given to the companies that did respect
the SOX regulations. Meaning that not all, corporations that are caught are given penalties. In
order to be more effective in the future SOX needs to be revise and have new regulations. As
for small companies regulations that the small companies can meet.
Each company, corporations and small companies, should be require to have an ethical
code. In these codes, the company should state which ethical and not ethical in doing the

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financial reporting. The SOX should provide what should be in the ethical codes and what are
the penalties.
In the future, the cost to do the audit that the SOX wants would be expensive for the small
businesses. In the case, the small companies would not do the audit as the SOX regulation
prescribe to do. These small companies would find loops holes to use to get away.
Has the SOX failed?
From 2002 until 2015 the SOX has work but needs to improve to keep up with the
changing times. If the improvement like changing the penalties and regulations does not come
about in the future then the SOX is heading for failure. Additional regulation are needed for the
years that have economic crisis.
Conclusion
The Sarbanes-Oxley Act 2002 is an excellent act that has help to clean up a bit the
corporations and companies of America. There is a need to improve in order for the SOCX to
continue to be effective

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6
References

Clayton, B. (2013). Is Sarbanes-Oxley a Failing Law? Retrieved from

http://uculr.com/articles/2013/6/30is-sarbanes-oxley-a-failing-law
Coustan, H., Leinicke, L. M., Rexroad, W. M., & Ostrosky, J. A. (2004). Sarbanes-Oxley: What
it means to the market place. Journal of Accountancy, 2(2), n.d.
Flint, A. J. (2005). Solutions to corruption in the auditing profession. Review of Human Factor
Studies, 11(1), 133-129.
Lexicon. (n.d). Definition of Audit Committee. Retrieved from http://www.lexicon.ft.com
Maleske, M. (2012). 8 Ways SOX changed corporate governace. Retrieved from
http://www.insidecounsel.com
Montana, J. (2007). The Sarbanes-Oxley: Five years later. Information Management Journal,
41(6), 48-53.
Nicholls, C. (2014). Is the Sarbanes-Oxley working? Retrieved from
http://www.insurancenewsnet.com
SOX Law. (n.d). Sarbanes-Oxley Act Section 404 and 802. Retrieved from
http://www.soxlaw.com
SOX Online. (n.d). Sarbanes-Oxley Essential Information. Retrieved from http://www.soxonline.com
Sweeney, P. (2007). Will new regulations deter corporate fraud? Financial Executive, 27(1), 5457.