Running head: SARBANES-OXLEY ACT 1
Sarbanes Oxley Act
John Simpson
Professor Alex Armstrong
Strayer University
Auditing I
December 21
st
, 2012
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Sarbanes-Oxley Act
The Sarbanes-Oxley Act has been very effective especially improving on the accuracy
and reliability of corporate disclosures, protecting investors and seeking to further this goal by
imposing strict rules for audits and auditors of publicly traded companies. It also prevents
insider trading and deals, making companies adopt strict internal controls, and increasing the
penalties for white collar crimes that relate to investor fraud. The Act has a dramatic change
across the corporate area to re-establish investor confidence in the integrity of corporate
disclosures and financial reporting. The Act has provided new enforcement tools to contest
corporate fraud, punish corporate wrongdoers and prevent fraud with the threat of penalties. For
instance, for the fiscal year through August 20, 2003, the Commission (SEC) has filed 543
enforcement actions, 147 of which involve financial fraud or reporting violations (Sarbanes
Oxley Act, 2012). During this period, the Commission has sought to bar 144 offending
corporate executives and directors from holding such positions with publicly traded companies.
They are holding not only the companies that engage in fraud, but all participants
involved. For example, recent actions signify the Commission's willingness to pursue directors
who are reckless in their oversight of management. They have designed strategies that take
advantage of the creative provisions of the Act to return funds to investors who have suffered
losses rather than merely collect those funds for the government. This is the suggestion for
improvement. For those of you who work at public companies or who counsel public
companies, the activities of the Board may not seem very relevant to your day-to-day problems.
The Sarbanes-Oxley Act, and the SEC and stock exchange rules that it spawned, created a
myriad of new issues for public companies. It has probably been a relief not to have had to also
focus on the Board's pronouncements. The PCAOB will have a significant impact, not just on
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auditors, but also on their public company clients. Here are three ways that the Board's work
will have an important effect on public companies.
The first, and least important impact on public companies, is that they will be footing
the bill for the Board's work. Accounting firms must pay registration and annual reporting fees
to cover the costs of processing their filings with the Board. However, Congress provided that
their primary funding source will be fees assessed against public companies in proportion to their
market capitalization. Second, while the Board's disciplinary authority extends only to
accountants, the inspections and investigations will also affect public companies. Obviously, to
determine whether the auditor did his or her job properly, it will generally be necessary to review
the audit client's records and to talk to its personnel.
Third, the Board's work may influence the types of non-audit or consulting services that
public companies can obtain from their auditors. In the 1990s, revenues from consulting, such as
systems design, tax planning, assistance with data processing, and a host of other advisory
services, became increasingly important to the major firms. In many cases, clients were paying
their auditors far more for non-audit services than for the financial statement audit. Burgeoning
non-audit revenues raised questions about auditor independence and auditor willingness to risk
losing consulting business by standing up to the client on audit issues. The Sarbanes-Oxley Act
sought to reverse this trend. Congress believed that auditors needed to get back to auditing. The
Act prohibits accountants from providing nine categories of non-audit services for public
company audit clients. Services that are not on the prohibited list may still be performed, but
only if approved in advance by the client's audit committee and publicly disclosed (Goelzer,
2003).
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With the entire recent corporate crisis it has brought into relief the challenge of who
should regulate. Currently, the government shares regulatory authority and oversight with
various nongovernmental, self-regulatory institutions. Self-regulation has been prominent in the
operation of securities markets as well as in the oversight of the accounting and legal
professions. There are three things that need to be asked. Are these existing self-regulatory
arrangements sufficient? Should government change its oversight of self-regulatory institutions?
Or should government assume a greater and more direct role in regulating? In addition to
choosing who will regulate, recent scandals have highlighted the challenge of deciding how to
regulate. Most broadly, regulators face a choice between principles and rules. Should regulatory
standards articulate broad goals or purposes, guiding behavior through the adherence to general
principles? Or should regulations take the form of specific rules that tell companies and their
lawyers and auditors exactly what is acceptable and unacceptable? Rules have their virtues, and
they have been widely used, but they also may allow corporate actors to find ways to comply
with the letter of the law while circumventing its spirit.
Finally, regulators face the challenge of deciding how to enforce the rules or principles
they have adopted. Is more aggressive enforcement needed? Should enforcement officials target
just individual perpetrators, or should they also go after the corporations in which misconduct
occurs? When should regulators pursue criminal (as opposed to civil) sanctions? Furthermore,
since both the state and federal governments have jurisdiction over publicly traded corporations,
enforcement officials must constructively deal with jurisdictional competition (Coglianese,
2004).
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I believe that corporate fraud will be reduced due to section 802 of the Sarbanes-Oxley
Act which has penalties of fines and/or up to 20 years imprisonment for altering, destroying,
mutilating, concealing, falsifying records, documents or tangible objects with the intent to
obstruct, impede or influence a legal investigation. Section 802 also imposes penalties of fines
and/or imprisonment up to 10 years on any accountant who knowingly and willfully violates the
requirements of maintenance of all audit or review papers for a period of 5 years (A Guide to the
Sarbanes-Oxley Act, 2006).
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References
A Guide to the Sarbanes-Oxley Act. (2006). Retrieved from Sarbanes-Oxley Act 2002 :
http://www.soxlaw.com/index.htm
Coglianese, C. J. (2004). The Role of Government in Corporate Governance, Regulatory Policy
Program Report RPP-08. Cambridge: Center for Business and Government, John F. Kennedy
School of Government, Harvard University.
Goelzer, D. L. (2003, October 31). The Work of the PCAOB: Why Should Public Companies Care?
Retrieved from Public Company Accounting Oversight Board:
http://pcaobus.org/News/Speech/Pages/10312003_GoelzerPublicCompanies.aspx
Sarbanes Oxley Act. (2012, November 23). Retrieved from Anti Essays:
http://www.antiessays.com/free-essays/292308.html
