Case-study: A primer on Sarbanes-Oxley

Case-study: A primer on Sarbanes-Oxley

Introduction

The purpose of this study is to expand the boundaries of our knowledge by exploring some relevant information relating to the analysis of Sarbanes-Oxley Legislation. This legislation is also referred to as Sarbanes-Oxley Act (2002) or SOX. The purpose of initiating this act is to gain and maintain the confidence of general public in public companies. The Sarbanes-Oxley Act is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. It was enacted in July 2002 by the government of the United States of America as a result of several accounting scandals involving major U.S. companies such as Enron, the auditing firm Arthur Andersen, WorldCom and Tyco International. These scandals have caused great distrust on the part of investors in the markets, also lifting some doubt about their security policies (Holt, 2008).

It was originally two different draft laws proposed by Congressman Mike Oxley (Republican elected in Ohio ) and Senator Paul Sarbanes (Democrat elected in Maryland): the two designs were unified by a bicameral committee and approved on 24 July 2002 with overwhelming majority in both houses, and signed by President George W. Bush on July 30. The law is intended to act to close some "holes" in the legislation, in order to improve corporate governance and ensure transparency of the accounts. It also increased the responsibility of the auditor at the time of audit. The points on which the law focuses its attention are (Holt, 2006):

Greater responsibility for the management with regard to the accuracy of the accounting information on budgets and financial reports;

It creates a new supervisory authority of the external auditors;

Increased penalties for accounting crimes and tax offenses;

It gives more power to the minority

In this study, the author will examine three different aspects of c. The author will identify the ethical issues related to SOX, the cost of executing the legislation, and the governance practices and principles that are necessary for appropriate implementation of the act.

Problem Statement

The problem to be investigated is the analysis of different aspects related to Sarbanes-Oxley Act of 2002.

Discussion & Analysis

Ethical Issues related to Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 requires companies to implement several internal controls to protect their financial information. Although, this law has reassured investors by imposing strict new rules and sanctions, but it was written in haste and was very complex, so it has caused headaches for regulators for several months and that continues to have enormous compliance costs as well as ethical issues for businesses (Fletcher, 2008).

With regards to the ethical issues related to the legislation, an important function of SOX guidelines is the separation of accounting functions. This ensures that one person does not handle certain accounting processes end to end, which can increase the chances of fraud or embezzlement. To meet the requirement of segregation of duties, companies must add additional accounting staff. Use existing employees outside the accounting office is not acceptable because it breaks down the internal audit ...