Sarbanes Oxley Act

Sarbanes Oxley Act

Introduction

The Sarbanes Oxley act was passed in 2002 for all the public companies of United States. It also known as “corporate and Auditing Accountability and Responsibility act” and “Public Company Accounting Reform and Investor Protection Act”. This law was implemented, and it did set new standards for public accounting firms, public company boards, and management. It named after Paul Sarbanes (senator) and Michael G. Oxley (US Representative). Hence, it named as SOX, described further that the top management must be certifying the accuracy of information related to finance. It increased involvement of the outsider auditor of the financial statement and the role of director's board. The act was passed by the House with the ratio of weight that was 3 against, 423 in favor, and 8 no vote. Whereas in Senate it was 1 no vote and 99 were in favor. Mr. George W. Bush, the President of Untied Sates of America signed in into the law and said that it was on of the most valuable reforms in the business of America since the era of Franklin. According the President the time of false profits was over in US (Bumiller, 2002).

The defective accounting techniques and the false business procedures stole the public trust in the corporate sector of America and resulted in the lost of numbers of jobs. The companies did many unlawful and false actions to artificially create the value of the shares and stakes of the company. They hide the company losses and increased profitability. This law passed after a number of scandals of companies such as Enron, WorldCom, and Tyco international and so on (Benner, YND). The SOX law contained 11 titles with a detailed description and these titles are:

Corporate fraud accountability

Corporate tax returns

White Collar crime penalty enhancement

Corporate and criminal fraud accountability

Studies and reports

Commission resources and authority

Analyst conflicts of interest

Enhanced financial disclosures

Corporate responsibility

Auditor independence

Public company accounting oversight board

SOX and Information Technology

Information technology supports the driver of the corporation to obey with SOX by protecting and securing data of finance on the network. It is also necessary to continuously do this effort. Without the use of information technology support, an organization is unable to obey with SOX and will endure payback from the Exchange Commissions and Securities, which operated SOX. This act demands the public companies to ensure that internal audits are fair, adequate and are not disclosed to any misleading statement showing a fair image of financial conditions. Both the officers of the company and the accounting organizations must report the accuracy of the reports. Incase of any deficiency, obtained in the internal audit must be reported (Network Instruments, 2011).

Purpose of the SOX

The purpose of the SOX is to keep the large business away from financial decline and from misguiding the shareholders and investors. This act provides protection to investors from non-private firms. It produces the shield to investors and safe their assets from losing it unfairly. In this way, the investors are safe from being mislead into the business ...