The Sarbanes-Oxley Act of 2002 - Essay Example

Summary of the Act: Post the numerous scandals and bankruptcies in 2000, the government has come up with a new act which helps to restore the investor confidence. The act is currently based only for the publically traded companies under the SEC jurisdiction, however now in a few states, attempts are being made to apply this in the large non – profit organizations as well. This act is also referred to as the Public Company Accounting Oversight Board. The board will keep track of and inspect all the accounting firms, investigations and disciplinary proceedings, and also the enforcement compliance with the professional standards.

The act includes a number of provisions which includes seven main aspects of the act, i.e. (BoardSource, 2006)a) Independent and competent audit committee: The act requires the audit committee members to be a part of the board of directors. Also they need to be independent, i.e. not a part of the management and not receiving any compensation from the company either as an employee or even as a consultant.b) Responsibilities of Auditors: The act requires that the lead and reviewing partners of the audit firm are changed once every five years.

The best way to do so is to change the auditing firm every five years. c) Certified Financial Statements: The Act states here that the chief executive and the CFO need to certify the appropriateness of the financial statements. Also, any false certification can give rise to liability. The Act also requires that none of the chief executives, i.e. CEO, CFO, Controller, or CAO, were a part of the auditing firm for one year preceding the audit, to ensure that there are no conflicts of interest. d) Insider Transaction and conflict of interest: The Act has condemned the directors and the executives of the company to get any loans from the company (BoardSource, 2006).e) Disclosure: The Act requires a number of disclosures which include all information on internal control mechanisms, any corrections to the past financial statements, material off balance sheet transactions and also the material changes in operations or even the financial situation of the company.f) Whistle Blower Protection: The Act supports the whistle blowers and takes complete actions on any firm that might take any action against employees who report suspected illegal activities in the organization. g) Document Destruction: The Act considers the destruction of any litigation – related document or alteration, cover-up, falsification as a serious issue and especially if this is done to prevent the use of the documents for official proceedings (SOX law, 2003).

Impact on Accountants:The SOX Act can prove to be beneficial to the accountants as this allows the people to be more truthful and ensure that all books are in place. Also, with the various sections in place, it allows for protection of whistle blowers which will help ensure that the individual’s career is not at stake for bringing out any illegal activities in companies. Also as an accountant it will help the individual perform at their best and in good faith. SOX and Fraud:SOX have put together a number of rules and regulations in order to ensure complete safety of its investors.

The Act seems to have been very beneficial for all the companies and this is clear from the various comments of some high ranked individuals. According to Charles Niemeier, a member of the Public Company Accounting Oversight Board (PCAOB), "Instead of the sky falling, its just the opposite," he says. "I see it as a clear, blue sky. Were in a better place today, but were not willing to admit it." He also confirms that, "Fraud has dropped to much lower levels than five years ago," he says. "Is litigation bad for business?

Enron is bad for business" (Farrell, 2007).In conclusion it is safe to say that the SOX has shown results in the various companies and this has been able to bring down the fraud rate to a great extent. The Act is very beneficial especially to the small and medium investors and provides a safety net for these investors. BibliographyFarrell, G., 2007, ‘Sarbanes-Oxley law has been a pretty clean sweep’, 30th July 2007, Accessed on 9th September 2009, Retrieved from http://www.usatoday.com/money/companies/regulation/2007-07-29-sarbanes-oxley_N.

htmBoardSource, 2006, ‘The Sarbanes-Oxley Act and Implications for Nonprofit Organizations’, Accessed on 9th September 2009, Retrieved from http://www.boardsource.org/clientfiles/Sarbanes-Oxley.pdfSOX law, 2003, ‘Sarbanes-Oxley Act Summary and Introduction’, Accessed on 9th September 2009, Retrieved from http://www.soxlaw.com/introduction.htm