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Sarbanes Oxley Act - Research Paper Example

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Name: Instructor: Course: Date: Sarbanes Oxley Act The Sarbanes Oxley Act was an act that was passed by the Congress in the United States of America in 2002. It was signed into law on 30th July 2002 (Prentice 2). The act was passed with the sole aim of protecting investors from the risk of fraudulent accounting actions by corporations…
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Sarbanes Oxley Act The Sarbanes Oxley Act was an act that was passed by the Congress in the United s of Americain 2002. It was signed into law on 30th July 2002 (Prentice 2). The act was passed with the sole aim of protecting investors from the risk of fraudulent accounting actions by corporations. In the US Senate, the Sarbanes Oxley Act is commonly referred to as the Public Company Accounting Reform and Investor Protection Act (Shakespeare 333). In the House, the act is commonly referred to as the Corporate and Auditing Accounting and Responsibility Act.

In the US, the Sarbanes Oxley Act is a federal law that was established to enhance standards for all public accounting firms, management firms and public company boards. The Sarbanes Oxley Act got its name from its two main sponsors and architects, namely, Michael Oxley who was a US Representative and Paul Sarbanes who was a US Senator (Kohn, Kohn & Colapinto 12). The Sarbanes Oxley Act requires the top management of public companies to personally ensure the accuracy of any financial information relevant to their companies.

The Sarbanes Oxley Act of 2002 is obligatory and legally binding (Kohn, Kohn & Colapinto 23). All organizations are required by the law to comply with it, regardless of their sizes. The act is lauded for having introduced major changes to the regulation and standardization of corporate governance and financial practices in the US. Stringent new rules and highly significant legislative changes were introduced to protect investors. The act also aimed at improving the reliability and accuracy of corporate financial disclosures (Shakespeare 333).

Accounting and corporate scandals had become very common across the United States (Prentice 4). These scandals were costing investors a lot of fortune, especially at the collapse of share prices of the affected companies. Some of the major companies that were affected by these scandals included Peregrine Systems, Enron, Adelphia and Tyco International among others (Shakespeare 333). These scandals were causing a lot of ripples in the country as the confidence of the public and investors was terribly shaken.

Investors were losing trust in the country because of these scandals. The Sarbanes Oxley Act is considered a reaction to these accounting and corporate scandals (Kohn, Kohn & Colapinto 22). The Sarbanes Oxley Act is arranged into eleven titles (Prentice 5). These titles talk about various issues such as criminal consequences and the expectations of corporate management boards. With respect to internal control and compliance, sections 302, 401, 404, 409, 802 and 906 are considered most important (Kohn, Kohn & Colapinto 30).

The first title, Public Company Accounting Oversight Board (PCAOB) is made up of nine sections. In this title, the PCAOB is mandated to provide oversight of public accounting firms that provide auditing services. The central oversight board created in this title is responsible for the registration of auditors, quality control, inspection of conduct, enforcement of compliance with various mandates and the definition of procedures and processes for audit compliance. The second title is the ‘auditor independence’ which is also made up of nine sections (Shakespeare 333).

In the second title, there are well established standards for the independence of external auditors. Requirements for the approval of new auditors and requirements for auditor reporting are clearly set out. The second title is responsible for ensuring that audit firms do not provide non-audit services to the same clients. The third title is concerned with corporate responsibility. It consists of eight sections that mandate top management to take individual and personal responsibility of ensuring the accuracy, completeness and reliability of financial reports for their corporations.

Works Cited Prentice, R. Student Guide to the Sarbanes Oxley Act. London: Thomson Learning, 2005. Print. Shakespeare, Catharine. “Sarbanes–Oxley Act of 2002 Five Years On: What Have We Learned?” Journal of Business & Technology Law (2008): 333. Print. Stephen M. Kohn, Michael D. Kohn, and David K. Colapinto. Whistleblower Law: A Guide to Legal Protections for Corporate Employees. Praeger Publishers, 2004. Print.

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