The Sarbanes-Oxley Act

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The Sarbanes-Oxley act is a result of the series of companies manipulating their financial statements in order to provide misleading impressions of their financial status within the marketing economy (site source). This fraudulent activity hashad a negative effect on pension and trust funds within the capital marketing system. Companies such as Enron and WorldCom caused devastating effect on the economy. They are responsible for contributing to approximately $6 trillion worth of stock to disappear from the stock market (site source). Millions of people globally felt the effects.The Sarbanes Oxley act of 2002 was developed by Congress to prevent this from occurring again. One of the main purposes of the act is to protect investors from …show more content…
One important change of the provisions refers to a company’s internal control system. Prior to the SOX act there were no regulations or guidelines that were mandatory for organizations to follow in reference to who and how specific functions within the corporation were handled. Section 404 of the SOX act outlines the requirements for internal control procedures for public trading company. This has assisted with restoring the integrity of company’s financial reporting and has remove the factors that has contributed to conflicts of interest within the company. Companies must have a clear separation of duties and they must report their internal control procedures with their annual financial reports (site source). The SOX act is responsible for establishing the Public Company Accounting Oversight Board (PCAOB). The PCAOB is an independent, non-profit organization (site source). The PCAOB is responsible for performing investigations of questionable accounting practices, hold disciplinary hearings and impose sanctions on firms and auditors who are caught allowing fraudulent practices fall through the cracks (site source). The PCAOB, has placed provisions for accounting firms to be registered and has made it illegal for an unregistered firm to issue any type of financial reports for publicly traded companies (site source). This provisions allows accounting firms to be held accountable for the information that is reported.Since the SOX act CEOs and CFOs now have to acknowledge that they are responsible for the internal financial controls and repay bonuses and capital gains from stock sales that have been gained as a result of misconduct (Lasher 2008 p.
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