SARBANES-OXLEY ACT OF 2002 3
Sarbanes-OxleyAct (SOX Act) of 2002
RE: Zameeruddin, R. (n.d). The Sarbanes-Oxley Act of 2002: An overview,analysis, and caveats. Retrieved fromhttp://www.westga.edu/~bquest/2003/auditlaw.htm
Sarbanes-OxleyAct (SOX Act) of 2002 was implemented to protect investors fromfraudulent accounting actions in businesses. It was mandated inresponse to Enron’s accounting scandal that was rendered bankruptafter numerous accounting irregularities. The rules of Sarbanes-OxleyAct (SOX) focus majorly on amending the legislation on securityregulations. The main provisions mandate senior management to certifythe accuracy of financial statements and to establish internalcontrol by both auditors and management. Overall, SOX standardsstrengths internal controls, reduce conflict of interests between acompany and its auditors, and enhance the disclosure of balancesheets.
Thelegal issues in SOX act attract criminal penalties of up to 20 yearsimprisonment. The rules under the act penalize for destruction ofdocuments, fraudulent schemes, and failure to maintain workingpapers. It is now a crime to create or destroy documents that impedeinvestigation on fraud activities in a firm. Further, accountants’failure to maintain audit and reviewing documents for five years is afelony that may attract imprisonment of up to10 years (Zameeruddin,n.d).
Thechanges brought about by SOX are wide and far reaching. Companies arenow supposed to have an internal control report each annual audityear. Based on the size, the forms of accounting have to be reviewedevery one to three years. As such, the accounting firms have now tocarry a personal liability for audits thus, increased costs. Publiccompanies that comply with SOX must also incur an extra expense forlegislation and annual audits. Further, companies need to invest ininternal control software to ease tracking and reviewing of internalperformance.
However,despite SOX having its benefits, there are many complaints on itseffectiveness. Ever since the act was implemented, many companieshave raised concerns because it is expensive and time consuming. Thedirect and indirect costs associated with SOX on businesses outweighthe intended benefits considering it is very unlikely to attain zerofraud. However, the proposing side claims that this is the best wayto enhance investors’ confidence and prevent accounting frauds.Even though it may be difficult to totally eliminate fraudulentactivities in businesses, it is prudent to minimize the risks at allcosts.
Zameeruddin,R. (n.d). The Sarbanes-Oxley Act of 2002: An overview, analysis, andcaveats. Retrieved fromhttp://www.westga.edu/~bquest/2003/auditlaw.htm