Sarbanes-Oxley Act of 2002

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act was passed by congress in the year of 2002 due to the discovery of well-known companies committing fraud. The scandals lead the United States congress to pass the Sarbanes-Oxley Act to restore public confidence in the stock market and trading of securities. This paper will discuss some of the main aspects of the regulatory environment which lead congress to want to protect the public from fraud within corporations, the SOX requirements, the measures used to evaluate whether the SOX would be effective in avoiding future frauds.

The new law requires that the financial records provide valid documentation performance of a company with measures in place to detect any violations. According to Making Finance Work For Africa (2012), “Legal and regulatory contexts that authorize the manager and govern the conduct of market contributors form the foundation of an organized operation and development of the financial division, and the importance of claims in financial institutions on borrowers should depend upon the assurance of legal rights combined with certainty of fair and impartial enforcement”. Regardless of what business you are in, there has always been some form of regulatory compliance required by government to ensure corporations follow the rules and conduct themselves accordingly or be liable for bad conduct, and are subject to penalties (Doculabs White Paper, 2012).

The United States Securities and Exchange Commission (SEC) developed regulations to help protect investors as well as the public from fraud by corporations by requiring the organization to maintain a market that is fair, orderly, and efficient which facilitates capital information. So if companies like Enron secure an unfair gain via intentional deceit such as reporting fraudulent information about their financial portfolio, this hurts those who use the market to gage profit for the benefit of securing a home, sending their kids to college, and retirement.

The SEC developed four categories for reporting false financial documents. Needless to say, when executives use illegal schemes to benefit by the use of “cooking the books” (making up financial records), embezzling, and stealing employee retirement accounts is punishable by law. When the company avoids paying taxes on its earnings and liquidates employee’s retirement funds and issues the proceeds between the board of directors and managers, as a “performance bonuses” is punishable by law. Last but not least, the forth category is a type of fraud that includes bribery or improper payment schemes to attain financial gain or business awards that the company may not have been able to achieve using proper business practices.

Sarbanes-Oxley Act implemented anti fraud programs that require transparency of a company’s financial information. This information is to be made public and allow investors