Sarbanes Oxley Act Of 2002

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Sarbanes Oxley Act of 2002

Abstract

The Sarbanes Oxley Act of 2002 is a U.S. federal law that was passed in order to avoid scandals like those that occurred at Enron, WorldCom and other companies that suffered something similar. This term paper illustrates that how this act may have contributed to holding corporate executives accountable for their actions, and how it relates to the ethics of both the organization and individuals who work for and manage the organization.

Sarbanes Oxley Act of 2002

Introduction

The Sarbanes-Oxley Act of 2002 is a law that provides guidelines for accounting firms. These guidelines are to ensure that accounting firms with responsibility and proper audits of financial statements of the company. The bill was in response to the Enron fiasco. In response to major corporate accounting scandals at large U.S. companies such as Adelphia, Computer Associates, Enron, and WorldCom, to name a few, the United States Congress passed a sweeping legislation in July 2002 aimed at improving the integrity of financial statements and related audits and mandating certain corporate governance practices within publicly traded U.S. companies. This legislation, called the Sarbanes Oxley Act of 2002 (referred to here as Sarbanes-Oxley or the Act), has been considered by many to be the most significant new law since the passage of the Securities and Exchange Acts of 1933 and 1934. The Act is most commonly referred to by its section numbers. Each section has specific requirements, affecting either the external auditor or a company or both, or in some instances, creating additional government oversight of companies and their auditors (Zhang, 2008, pp.42).

Discussion

The Sarbanes-Oxley Act of 2002 is a U.S. federal law that has generated much controversy, since this Act is in response to the financial scandals of some large corporations, among which include cases involving Enron, Tyco International, WorldCom and Peregrine Systems. In this scenario, Sarbanes-Oxley state as a tool to control unethical practices in a competitive corporate world. It outlines the new guidelines on accounting, auditing and overall financial management within companies. These scandals brought down the confidence of the public in accounting and auditing. The Sarbanes-Oxley was passed in order to avoid scandals like those that occurred at Enron, WorldCom and other companies that suffered something similar. This act also represents an enormous challenge for the accounting departments of companies forced, while the volume of changes. Its application, and to a greater extent by the ignorance that still exists in this area. In the U.S. there was a stir and a general dissatisfaction on the part of investors, who were wary of the regulatory institutions and government. To avoid this drop in confidence passed this law, because for all practical purposes cannot prevent something like this happen again. This law could not prevent a company to make accounting fraud as Enron did. If the information is offered to auditing companies is false, or incomplete, they will audit companies about unrealistic and incomplete reports. What does state law is a responsibility, as there is a sign the person responsible for reporting ...
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