http://www.nysscpa.org/oxleyact2002.htm
Following the unmasking of billion-dollar earnings manipulations at corporations such as Enron and WorldCom in the early 2000s, the accounting profession has had to reexamine ethics and its implications. The Sarbanes-Oxley Act created new standards for corporate accountability as well as stiffer penalties for noncompliance including imprisonment for up to twenty years. In response to the Sarbanes-Oxley Act, accounting profession regulators began to look at enhancing ethics training for current and future accounting professionals.
The Sarbanes-Oxley Act was designed primarily to regulate corporate conduct in an attempt to promote ethical behavior and prevent fraudulent financial reporting The legislation applies to a company’s board of directors, audit committee, CEO, CFO, and all other management personnel who have influence over the accuracy and adequacy of external financial reports. Section 302 affects senior management, both the CEO and the CFO must personally sign and certify that the company’s financial report does not contain any known untrue material statements or omit a material fact. They must admit that they are responsible for establishing and maintaining internal controls. CEOs and CFOs are subject to a $5 million fine or a 20-year prison term for violation of the certification regulation, which falls under federal court jurisdiction.
The Sarbanes-Oxley Act takes a much stronger position on incarceration than previous attempts to legislate morality in business. Some people think Sarbanes-Oxley Act have negative effect toward market, because it is so strict. However, good ethics is good business. If you look closely at examples of unethical business behavior, you discover two things: the company derives only short-term advantages from its actions, and over the longer term, skimping on quality or service doesn’t pay. It is not a good business. Good ethics affects the good name of the company and builds trust. It is obvious that to cut corners for short-term gain will only erode the company’s reputation. An accounting firm that cannot be trusted is useless, because people depend on the firm and individual accountants to provide them with accurate pictures of organization’s financial status.
The Sarbanes-Oxley Act was signed by President George Bush on July 30, 2002. As enacted, the law directly impact publicly traded companies, CPA firms auditing public companies, and top management of big firms. The SOX Act enhanced corporate transparency. The corporations have improved their internal controls and financial statement to be more reliable.
After reading those articles, I learned a great amount of information regarding the Sarbanes-Oxley Act (SOX). Sarbanes-Oxley Act is useful to reinforce accountability, improve financial reporting and governance in corporations. The primary goal of SOX is also to fix auditing of US public companies, consistent with it official name: the Public Company Accounting Reform and Investor Protection Act of 2002.
The punishment of disobey the Sarbanes-Oxley Act is serious. The top management should have integrity to avoid disobey this law. Having integrity is doing what you know is right regardless of what anyone else may want. It’s who you are when no one is looking and you do the right thing.
Xitong He 