Policies for Change

Policies for Change

In the last decade corporate ethics have taken a hit to its reputation in the public’s eyes. State law requires that directors of companies act in the best interest of the corporation and its shareholders’. Companies today need to also be concerned with the impact their decisions have on stakeholders’ as well. The new concept of corporate social responsibility has grown increasingly more important in today’s era. Corporate ethics hit an all-time low as the public viewed the collapse of Enron and WorldCom due to corporate greed. The greed of a few ruined the lives of thousands who either worked for these corporations or invested in them. Accountants and chief executives conspired together and not only violated the law, but the ethical actions that people of power should possess. The result was the Sarbanes-Oxley Act, which strengthened the checks and balances needed to prevent this conduct from occurring again. In my opinion the Sarbanes Oxley Act can be improved to help provide for better security of the economy in the future, as well as increasing the ethical behavior of corporations.

In the wake of the major accounting scandals that damaged our economy and the public’s view of corporate ethics, the Sarbanes-Oxley Act (SOX) was signed into law on July 30, 2002. The Sarbanes-Oxley Act has been widely viewed as the most far-reaching securities legislation in decades. The Sarbanes-Oxley Act has four major areas that are covered in the act.

• First being the creation of the Public Company Accounting Oversight Board (PCAOB) which sets standards and rules for audit reports (Simon, 2013). All accounting firms that audit publically traded companies must register with the Public Company Accounting Oversight Board. This board is also tasked with defining the specific processes for compliance audits, inspecting the conduct of the auditors and enforcing compliance of SOX (Simon, 2013).

• Next area is designed to provide greater independence for external auditors and that audit committees are comprised of independent members and members with financial expertise (Kieso, Weygandt, & Warfield, 2014). This portion of the act basically functions as a buffer to help separate auditors from the companies that they are auditing. Separation of these two entities helps to prevent accountants from “cooking the books” of these corporations for monetary compensation. Under this section of the SOX Act auditors are restricted from performing consulting jobs for the companies that they have previously audited. In a way this helps to put a separation of duties between the two business entities (Simon, 2013).

• The next area that the SOX Act covers is that corporations now have a greater responsibility of reporting financial disclosures that normally do not appear on its official financial documents, but still effect the corporation’s financials.