Sarbanes-Oxley and Corporate Governance Paper

Sarbanes-Oxley and Corporate Governance Paper

Nicholas Van Horne

ETH/321

May 30, 2016

Richard Simon

Sarbanes-Oxley and Corporate Governance Paper

Congress passed the Sarbanes-Oxley Act (SOX) in 2002 to decrease unethical accounting practices. As a result of the SOX, financial information presented by publicly traded companies requires certification of accuracy by top management officials. According to “A Guide To The Sarbanes-Oxley Act of 2002” (2006), “The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important sections within these are often considered to be 302, 401, 404, 409, 802, and 906 (A Guide to Sarbanes-Oxley Act).” In this paper, this student will determine if PCAOB members should be taken from the investment community that uses the audited financial statements and determine how the decision would impact the validity  of the Board and other provisions of the Sarbanes-Oxley Act (University of Phoenix, 2016).

Sarbanes-Oxley

Publicly traded organizations that are not in compliance with the Sarbanes-Oxley Act are liable for criminal and civil penalties. For organizations to be in compliance with the SOX, all financial reports are required to include an Internal Controls Report that shows that the company’s financial date is accurate. This report also shows that the controls are adequately in place to safeguard the financial data. Below are six sections of the Sarbanes-Oxley Act of 2002 that are mostly important for organizations to understand to be in compliant (Addison-Hewitt Associates, 2006).

Regulatory Environment

To limit the control over business practices, the federal, state, and local governments development several laws and regulations that these business are required to adhere to. The regulatory environment plays a vital role in the financial operations and the management of cash flow and domestic savings. When a business is doing business in the United States or has any United States connection, the business is required to comply with specific regulations.  Regardless of the business industry, there are regulations that the business must follow in order to be in compliance with government and industry regulations. These regulations have penalties that are clearly defined when the company is in non-compliance of the regulations (Doculabs, 2004).  

When the Sarbanes-Oxley Act was created in July 30, 2002, the intent of the act is to help protect individuals from corporation fraud. However, it was created because of the fraudulent accounting practices by Enron, Tyco and WorldCom that required positive solutions after these scandals occurred and when questions arose concerning American businesses. When SOX was created, the federal government also created the Public Company Accounting Reform and Investor Protection Act to improve the ease of creating new standards for accounting firms.  “The statute requires companies to have robust internal control systems that can be built into their compliance processes to promote integrity and accuracy within their business operations” (Maharaj, 2012).