Question

Since the enactment of Sarbanes-Oxley, auditors have had civil and criminal liability and are required to take personal responsibility for financial statements. This activity will assist you with understanding your responsibilities and the legal ramifications of not meeting them. This background information will assist you with completing the final project and will provide preparation for a career in auditing.

Critics of the Sarbanes-Oxley Act do not believe the act will be effective at deterring accounting frauds because it primarily relies on specifying new crimes and higher penalties (e.g., increased maximum fines and prison terms). Critics argue that if corporate executives are not deterred by the prospect of 5 or 10 years in prison (which existed pre-Sarbanes-Oxley), the threat of imprisonment will have little or no practical effect no matter what the maximum is raised to. Thus, critics conclude that the act was more an expression of political outrage than good policy.

Proponents of the act believe the new crimes, increased penalties, and the other provisions in the act will be effective at significantly reducing corporate accounting fraud.

Required

Provide your opinion concerning the Sarbanes-Oxley Act and support your thoughts with at least one scholarly source

Answer 1

The Sarbanes-Oxley Act of 2002 cracks down on corporate fraud. It created the Public Company Accounting Oversight Board to oversee the accounting industry. It banned company loans to executives and gave job protection to whistleblowers. The Act strengthens the independence and financial literacy of corporate boards. It holds CEOs personally responsible for errors in accounting audits.The Securities and Exchange Commission enforces it. Many thought that Sarbanes-Oxley was too punitive and costly to put in place. They worried it would make the United States a less attractive place to do business. In retrospect, it's clear that Sarbanes-Oxley was on the right track.

Section 404 requires corporate executives to certify the accuracy of financial statements personally. If the SEC finds violations, CEOs could face 20 years in jail. The SEC used Section 404 to file more than 200 civil cases. But only a few CEOs have faced criminal charges.

Section 404 made managers maintain “adequate internal control structure and procedures for financial reporting." Companies' auditors had to “attest” to these controls and disclose “material weaknesses."

While a perfect world is unachievable, 15 years later, investor confidence has certainly made great progress, and the governance landscape has been reshaped significantly. But the positive impact of SOX has extended beyond its initial goals, and it should continue to be relevant as it evolves to encompass new developments.SOX has allowed a more efficient and streamlined approach that focuses on areas of real risk rather than a catch-all approach. Companies that have put sufficient resources and effort into designing strong SOX programs have clearly understood the benefits that SOX brings beyond compliance. The acceptance that Sarbanes-Oxley was here to stay allowed its internal control environments to become the norm within organizations.

Major Benefits of SOX Act is

1.Changed corporate behavior

SOX forces companies to be disciplined and helps businesses reduce the number of mistakes they would make otherwise.

SOX also strengthens the roles and responsibilities of audit committees to allow them to continue to hone their capabilities and enhance their financial reporting, creates specific communication of the review delivered throughout the company and provides the internal audit team with a prime opportunity to become one of the cornerstones of business.

Furthermore, the SOX guidelines protect whistleblowers from retaliatory actions and prevent potentially expensive lawsuits and government fines. A fully transparent disclosure process is a key part of SOX, and this has created stronger companies.

2. Investor confidence

Under the requirements of SOX, public companies are obligated internally to perform extensive control tests; and externally, they are instructed to disclose any material off-balance sheet arrangements. Also, top managers have to personally certify the accuracy of the financial reports. SOX also requires all board members to be evaluated to be financially literate and competent, which enhances the credibility of the company in attracting investors.

Despite all the benefits that SOX brings to businesses, there remain new emerging and ongoing challenges of which audit executives and leaders need to stay abreast.

Cybersecurity is something that historically was not part of the standards of what to look at when SOX was first enacted, but with the widely increased adoption of cloud computing, cyber security has become one of the major concerns among companies.

So we can easily say that despite so many difficulties SOX act has been able to fulfill the purpose for which it was enacted.