Sarbanes-Oxley Act of 2002 - Research Paper Example

The Sarbanes-Oxley act of 2002 is actually named “Public Company Accounting Reform and Investor Protection Act”. As such, the act sought to change the way in which top management, accounting firms, and investors interacted with one another. By certifying the legitimacy of information, the framers of this act sought to correct many of the issues that had seemingly plagued auditors and oversight committees for years. The first of these changes can be described with regards to the creation of a public company accounting oversight Board (PCAOB).

Much as the name implies, this particular entity is required as a means of providing a level of oversight with respect to the registration and analysis of compliance that audits and auditors are able to put forward. Through such an entity, the overall level of oversight that auditors and committees can affect is drastically increased; tangentially leading to a situation in which the potential for abuse is subsequently reduced. A further core component of Sarbanes-Oxley is with respect to what is known as auditor independence.

By establishing key standards for auditor independence that help to limit conflicts of interest and promote the overall truthfulness, veracity, and reduction in bias, this particular complement of Sarbanes-Oxley is directed at restricting the level of integration that key firms can provide to another. For instance, prior to Sarbanes-Oxley, it was perfectly legal that a particular accounting firm could also serve the joint function of consulting with the same firm that they were hired to analyze and recommend key accounting practices/approaches (Gupta et al., 2013). Naturally, the conflict of interest within such a case is profound and creates a situation in which either the accounting procedures and/or the consulting would be adversely affected by the conflict of interest