Question

Sarbanes-Oxley Ten Years Out Ten years has passed since the passage of the Sarbanes-Oxley Act of 2002, and to date, the SEC—the organization in charge of prosecuting violations of the law—has filed cases against only 20 companies accused of violating the act. The backbone of the act was increased responsibility placed on company executives. The act allows the SEC to seize pay from the CEOs and CFOs of companies found to have filed fraudulent financial statements, even if the executives were not directly involved in the fraud. However, some experts, such as Jack T. Ciesielski, president of R. G. Associates and the editor of The Analyst’s Accounting Observer, believe the act is a “dormant enforcement tool” and is not a deterrent because it is not really being used. A primary challenge to enforcing the Sarbanes-Oxley Act is that much of the language in the bill was poorly drafted and ambiguous. In addition to the small number of cases filed under Sarbanes-Oxley, half of the companies that have been charged have been small companies, and many cases have yet to be resolved. Recently, however, some larger companies have been charged with violations of the act. For instance, Navistar was charged by the SEC with overstating its income from 2001 to 2005, and, as a result, the chief executive of the company, along with the former chief financial executive, were forced to give back stock they had earned during that time frame. Similarly, the former CEO at Diebold (a maker of automated teller machines) was forced to repay cash and stock after the SEC charged the company with overstating its results over the course of five years. And in a recent case against Beazer Homes and two of its former executives, the SEC collected $8 million and 119,000 shares of Beazer stock. While these cases do involve larger companies, with executives being forced to return at least some portion of their compensation, many feel that enforcement is still lacking. According to Harvey Goldschmid, a professor at Columbia Law School and a former SEC commissioner, “The trick is to create deterrents and accountability in the system. You don’t do it if you’re soft on individuals.”

Question: 1. Use the Internet to research the latest news surrounding the Sarbanes-Oxley Act. Make a list of companies that have been charged with fraudulent activities in the last three years. Can you see any patterns of an increase or decrease in fraud over the past few years?

Answer 1

Sarbanes Oxley act was enacted in 2002 to several major corporate and accounting scandals which include Enron and WorldCom. In the latest one size for all, the SEC has implemented the government mandates and regulatory disclosure like SOX for companies. HealthSouth also used false and misstated accounts and receivables in revenue reporting.

The fraud of Tyco International where top executives were involved in stealing of around $150 million and also charged with revenue inflation to $500 million. Companies like Silvercorp Metals Inc.(TSX/NYSE SVM) in China have implemented the Sarbanes Oxley Act. Westamerica Bancorporation (NASDAQ: WABC) have filed reports to the SEC using SOX regulation and compliance requirements. Grocery Outlet Holding Corp. has released its recent developments in finance complying with the Sarbanes Oxley Act which was not included in the previous year. Even Houston company has partnered with Rackspace partners to protect the cloud space of Amazon and for security purposes to remain compliant with the provisions of the Sarbanes Oxley Act. Another name is Ellig Group which is into the onboarding and recruiting has also taken the corporate governance route and the new head led its response to regulation and legislation that includes Sarbanes-Oxley Act.

All these companies are decreasing the chances and are set to decrease their suspected fraudulent activities after implementing the Sarbanes-Oxley Act. There are suggestions for seriousness in accountability and oversight along with financial sustainability. The companies reporting the inaccurate internal controls over financial reporting from the period of 2003 to 2019 have decreased after the Sarbanes Oxley Act of 2002 and SOX has acted as red tape in the financial system and has protected the investors to a large extent.