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Analysis of the Sarbanes-Oxley Act

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Analysis of the Sarbanes-Oxley Act
Analysis of the Sarbanes-Oxley Act

Abstract

The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence. In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting. Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a disadvantage of this act; and changes that still need to be incorporated.

The CEO’s and CFO’s of public companies

The Chief Executive Officer (CEO) of a public company is the executive with the chief decision-making authority in an organization or business. The Chief Financial Officer (CFO) of a public company is responsible for directing and coordinating the financial activities of the firm. CEOs and CFOs have a fiduciary duty to the owners and to the stakeholders in the public companies. The Sarbanes-Oxley Act (SOX) of 2002 was created to strengthen corporate governance, leading to more credible oversight both externally and internally (Rehbein, 2010). According to Richard Orin, the act constituted a daring effort to legislate morality, with the goal of restoring integrity to and public confidence in the financial markets (2008). There is evidence that the SOX regulations have led to more disclosure and information, benefiting market participants, lowering the cost of capital, and providing more accurate information about the performance of executives such as the chief executive officer and chief financial officer (Rehbein, 2010).

The implementation of effective business ethics became essential and the new



References: Auditing. (2007). Journal of Accountancy, 204(4), 21. Retrieved from EBSCOhost. Bisoux, T. (2005). The Sarbanes-Oxley. Retrieved from http://www.aacsb.edu/publications/archives/julyaug05/p24-29.pdf Bumgardner, L Burks J. (2011).   Are investors confused after restatements after Sarbanes-Oxley Act? The Accounting Review, 86(2) 507-539. Retrieved May 13, 2011 from ABI/Inform Global. Document ID: 2298723681 Kamar, E., Karaca-Mandic, P., & Talley, E Livingstone, L. (2009).   Ethical Decision Making. Lobo, G.J., & Jian, Z. (Winter 2010). Changes in Discretionary Financial Reporting Behavior Following the Sarbanes-Oxley Act. Journal of Accounting, Auditing & Finance, 25(1), 1-26. Martin, B. H. D., & Gay, B. K. (2010). Enhanced protection of investors and other changes to securities regulations. The Journal of Investment Compliance, 11(4), 27-36.   Retrieved May 13, 2011, from ABI/INFORM Global. (Document ID: 2193145901). Orin, R. M. (Winter 2008). Ethical Guidance and Constraint Under the Sarbanes-Oxley Act of 2002. Journal of Accounting, Auditing & Finance, 23(1), 141-171. Rehbein, K. (2010).   Sarbanes-Oxley: Does It Help to Distinguish Good CFOs From Bad Ones? Academy of Management Perspectives, 24(4), 90-92. Ryu, T. G., Uliss, B., & Roh, C. (2006). The Effect of the Sarbanes- Oxley Act on Auditors’   Audit Performance, Proceedings of the 2006 Academy of Business Administration   Conference. Snee, T. (2007, February, 20). UI researchers find positive market reaction to Sarbanes-Oxley Act. The University of Iowa News Series. Retrieved from http://news-releases.uiowa.edu/2007/february/022007sox-reaction.html

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