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Sarbanes-Oxley Act Analysis

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Sarbanes-Oxley Act Analysis
The Sarbanes-Oxley Act, also known as the "Public Company Accounting Reform and Investor Protection Act.” This act was sponsored by U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley in 2002 in reaction to several extremely high-profile corporate financial scandals, such as those involving Enron and WorldCom. These indignities ensued a decline of public trust in accounting and financial reporting practices. SOX applies to any company governed by the Securities and Exchange Commission (SEC) which includes all publicly traded companies; including all divisions, and their subsidiaries. In addition, Sarbanes-Oxley also applies to any non-US public multinational company engaging in business in the US. The Sarbanes-Oxley Act …show more content…
Having strong internal control thrusts a company beyond its present-day limits, thus facilitating the implementation of the best practices and providing necessary resources that aid in making them unique. Srinivasan (2014) stated, “Markets have been able to use the information to assess companies more effectively, managers have improved internal processes, and the internal control testing has become more cost-effective over time” (para. 9).
The act brings awareness to the importance of conducting activities for the financial success of the organization. The act provides guidelines for financial reporting, which created a market of trust and how to store records. The consequences for noncompliance are fines, imprisonment or both. Employees are able to report misconduct within the organization without fear of job loss or retaliation.
The practice of this act has brought changes to management policies and strengthened the power authority in organizations. Due to internal control regulations the risk of fraud has reduced. Organizations were able to benefit from financial and operational reports. In spite of criticism this act has proven to be a necessity in giving customers and shareholder confidence to invest in the
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