The Sarbanes-Oxley Act of 2002 Essay

Custom Student Mr. Teacher ENG 1001-04 9 May 2016

The Sarbanes-Oxley Act of 2002

ARTICLE SYNOPSIS

In response to the Enron and WorldCom scandals, the Sarbanes-Oxley Act was enacted in July 30, 2002. This provides a comprehensive power that modifies the compliance of how companies would need to report their financials to the Securities and Exchange Commission (SEC). The law’s purpose is to solve precise mechanism failures in accounting approaches and requires greater levels of fiduciary responsibilities especially for those companies that are involved in corporate governance. The Act also created the board named Public Company Accounting Oversight Board (PCAOB) to help create principles criteria and regulations for all SEC registrants. This legislation will not only affect the financial area of corporations, but will also affect the IT departments due part of their job it’s to store corporate electronic records. According to the Sarbanes Oxley Act states all business records, including the electronic documents, must be kept for at least five years. Some of the consequences for non-compliance are large fines, imprisonment, or could be both.

Companies like Enron, WorldCom misrepresented a series of questionable transactions that resulted in great losses to company’s stakeholders. Act will improve accountability by strengthening the internal checks and balances within corporations.

LEGAL ISSUE

The Sarbanes Oxley Act article brings many business issues that can incur when dealing with US market and how corporations publish their financials. Disguising certain financial information could lead to business malpractices. Some of the legal issues could be bankruptcy, fraud (i.e. securities and accounting), lawsuits and ethical issues.

MANAGERIAL PERSPECTIVE

The effects of these legal issues are that could compromise and harm tremendously the consumer, shareholders, and employees relationships with the company in question. Companies have to make sure their records are in order and according to SOX guidelines. This act has been in effect for over ten years, and any company that violates the law has to comprehend that are counted accountable for the consequences of their actions and a legal action will be set in place. These issues can be avoided by simply ensure that internal auditing controls are in place to help with validity and accuracy of the financial reports. The company’s main priority should always be protecting business assets, employees and shareholder best interest.

Resources:
Sarbanes-Oxley Act (SOX Act) of 2002 – Melvin, S. P. (2011). The legal environment of business: A managerial approach: Theory to practice. New York, NY: McGraw-Hill/Irwin. (Ch. 16)

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