Sabines Oxley Act free essay sample

Sarbanes-Oxley Act of 2002 ACC 100 03/11/11 Sarbanes-Oxley Act was drafted by Senator Paul Sarbanes and Representative Michael Oxley and was signed into law by President George W. Bush on July 30, 2002. The Sarbanes-Oxley Act is arranged in eleven titles, compliance in hand it is focused on sections; 302, 401, 404, 409, 802, and 906. The Sarbanes-Oxley Act was the outcome of the aftermath of the Enron, Tyco, and WorldCom scandals. The Sarbanes-Oxley Act (SOX), was to prevent corporations and their executives from willingly misleading the public of their financial health. The SOX Act was intended to protect investors by increasing the accuracy and reliability of corporate disclosures. SOX created new standards for corporate accountability. The SOX Act also changes the way how executives interact with each other and with internal auditors. This allows for a legal barrier between executives and the internal auditor and decreases any conflict that could be made between the parties. â€Å"It removes the defense of I wasnt aware of financial issues from Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) (SOX-Online). The act applies to all public companies in the United States and international companies that have registered with the Security and Exchange Commission and the audit firms they have hired as external auditors. This act was to enhance corporate governance and increase the corporate accountability. This is done by formalizing internal checks and balances and increasing separation of duties by creating new levels of control. It also ensures that financial reporting shows full disclosure, and that corporate governance has complete transparency. The SOX Act also enhances the audit procedure for public corporations and how internal controls are managed. The SOX Act requires all financial reports to include an internal control report. Internal controls are important part of the SOX Act; the internal controls are the corporation’s management of how financial transactions and process are done. The Act requires internal control reports on all financial reports; this is done to show that the company is confident in the report because controls were set in place to safeguard their financial data. Also with Act, year-end financial reports have to have an internal control report that shows the effectiveness of their internal control. Similarly, the company’s external auditor must attest to the assessment of the internal controls. The SOX Act also changed the penalties for willingly violating any titles under the SOX Act. Noncompliance penalties are vary and depend on which part of the Act the company is not in compliance with. The penalties range from the loss of exchange listing, loss of DO insurance to multi-million dollar fines, and also imprisonment. Not to mention that the company can also suffer from lack of investor confidence. A CEO or CFO who wrongfully submits an incorrect certificate is subject up to one million dollars and imprisonment for up to ten years. The penalty increases if the CEO or CFO willfully submits a wrong certification. The penalty can increase up to five million dollars, and the prison term can be increased up to twenty years. SOX Act section 302 title III, pertains to Corporate Responsibility for Financial reports. To summarize, section 302 covers which appropriate signing officers review the financial reports. This section also stated that their financial report does not contain any false material, and fairly present financial condition. This section also states that signing officers are responsible of internal controls and have evaluated their internal controls within previous nighty days and have reported their findings. The signing officials also have to report any deficiencies in the internal controls and list any fraud that involves employee’s information that participated in the fraud activities. SOX Act section 401 title IV, pertains to Disclosures in Periodic Reports. Financial statements are required to be accurate and must present in a way that could not misconstruing the information. The financial reports must also include any off-balance sheet including liabilities and any transactions. SOX Act section 404 title IV, pertains to Management Assessment if Internal Controls. Companies are required to publish information in their annual reports in review of their internal controls including their structure and procedure findings. Also as mention above, has to include the effectiveness of their internal controls. SOX Act section 409 title IV, pertains to Real Time Issuer Disclosures. Companies are required to disclose and update the public on an urgent basis of information about changes in their financial condition or operations. SOX Act section 409 title IV also goes into detail on how the update is presented to the public. SOX Act section 802 title VIII, pertains to Criminal Penalties for Altering Documents. As discussed before, this sections says imposes penalties can be up to twenty years of imprisonment for altering, destroying, flashing reports, or impede or influence a legal investigation. This Act was passed to help keep the confidence of the investors and to protect the investors from devastating losses. This Act helps enhance the governance of corporations and causes the executives to monitor and ensure proper internal controls are in place. Should executives be responsible to ensure their financial statements are accurate? I believe that they can. CEOs and CFOs need monitor work with their internal controls to ensure they are in compliance with SOX. SOX requires them to review their internal controls and disclose any findings of fraud or discrepancies. There are many resources for the executives to ensure their internal controls are in compliance with SOX. The SOX act was created to protect the investors and help to keep the investors’ confidence. If were not the case, and investors stopped pouring their money into the stock market, then that could lead to the crash in market and thus crumbling of economy. The cost of SOX relies on its benefits to ensure that companies are held responsible for disclosing their financial condition accurately. References SOX-Online (http://www. sox-online. com/basics. html, 2006) A Guide To The Sarbanes-Oxley Act (SARBANES-OXLEY ACT 2002, 2006) The Laws That Govern the Securities Industry (The Laws That Govern the Securities Industry, 2011)