The Sarbanes-Oxley Act

Primer on Sarbanes Oxley
What is the Sarbanes-Oxley Act and why was its enactment necessary? The Sarbanes-Oxley Act was enacted on July 2012 under the administration of President George W. Bush. The passage of this law was a reaction to a number of major corporate and accounting scandals that included Enron, Tyco International, WorldCom and Adelphia. What the myriads of corporate scandals have in common was skewed and questionable reporting of financial transactions that cost investors billions of dollars. Stock prices of these companies collapsed and questioned the confidence of the independent auditors and the Securities and Exchange Commission (SEC) were questioned. Commonly referred to as Sarbox or SOX, the Act was named after the
The 1980s was a time where many corporate misbehaviors and takeovers cost many people their jobs. The Treadway Commission, named after the organizer James C. Treadway, Jr., took the lead in examining the factors why companies misbehave and made recommendations to reduce fraudulent financial reporting. A group of private sectors in the accounting profession volunteered to carry out the goals of the Treadway Commission. This led to the formation of the Committee of Sponsoring Organizations of the Treadway Commission, also known as COSO (Arens, Elders, & Beasley, 2010). COSO was the venue in driving the swift passage of SOX. SOX established the Public Company Accounting Oversight Board (PCAOB) under the oversight of the Securities and Exchange Commission (SEC). The board is charged with the responsibility of overseeing and disciplining independent accounting firms in their role as auditors for public companies. The board has oversight on the implementation of stricter corporate governance, more disciplined exercise of auditor’s independence, enhanced audit reporting, more frequent review of control risk assessments and more informative report disclosures. Under the Sox, the SEC required firms to register with PCAOB to monitor strict compliance of SOX standards in the manner by which public accounting
Enron’s failure spotlighted corporate America’s moral failures and tremendously injured those that condoned and benefited from the unethical practices. This failure resulted in a major overhaul of accountability guidelines of the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Code of Ethics was promulgated along with other support mechanisms that monitor a company’s ethics program that extends to the core values of company management and personnel. Of the five components of ethical behavior, honesty is perhaps the most complex and difficult to implement since the ultimate decision to disclose information to the public relies mostly on the individual’s ethical values or interpretations that can be manipulated to produce a desired