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Accounting

Interpretation of Sarbanes-Oxley Act

Over the course of the decade, there have been many publicized corporate scandals from the much publicized downfall of Enron, to WorldCom, Arthur Anderson, Tyco International, and a host of other major corporations that scandals rocked the accounting world. These companies were cooking the books, hiding accounting practices not reported in audits, and stealing from clients. From the number of corporations involved in scandals, thousands lost their jobs, and millions more lost their trust in major corporations. Out of this mistrust, President Bush acted in a reasonable response by creating the Sarbanes-Oxley Act of 2002 that was enacted in July 2002. This new law targeted other major corporations with the primary goal of protecting investors and the public in providing accurate and true reporting of auditing and accounting services. These were set in place in order to restore confidence in major corporations, and honestly the government that mostly bails these companies out.

Congress actions in passing the law were out of growing public scrutiny of auditing services that were mostly done internally, turning a blind out to the misdeeds of the executives and the heads of the companies. The little guys which were usually the lower level employees were the ones that were left without jobs. This is where the public was most upset about that the CEO’s and executives were riding high, but the lower employees were left broke and without benefits. The requirements in SOX, have shifted the focused on the importance of outside auditing firms double checking the company’s books, and the growing importance of the Securities and Exchange Commission in getting back public trust.

According to the textbook, Irwin suggest that Sarbanes-Oxley Act was to hold businesses accountable for their auditing duty. When all these scandals happen the bigger question was, “where were the auditors?” (Louwers, 2013) This question is crucial in understanding the importance of how these companies were able to commit fraudulent activities long before being caught. Attention was only brought because of whistleblowers, or suspicions from the SEC. Auditing is the key in holding businesses to the standards that the SEC has entrusted in them to follow the letter of the law in operating within the United States. Internal audits that are done by the company is how most of the companies are able to get by. Internal audits are supposed to ensure the public of a company’s honesty. “Internal auditing is an independent, objective assurance and consulting activity that adds value to and improves and organization’s operations.” (Louwers, 2013) The end result of the SOX is to provide insurance to investors that the company is operating legitimately.

The impact of the law for the future is meant to be positive for investors, studies have proven that SOX has not only instilled faith in investors, but has uncovered other scandals, such as Value Line, that was committing fraud for over 20 years was discovered by the SEC credit from the SOX. (Bhaktavatsalam, Condon, 2009) However there has been criticism that SOX has prevented IPO’s and foreign investors from entering the market. Many representatives have asked for a repeal that feel are hurting the U.S economy. However the future impact is unseen as many have believed including investors that the law supports a market and business culture that breeds honesty in operations that show the public that they are able to remain successful and turn a profit in a legitimate fashion that contributes to the economy.

References

Bhaktavatsalam, Sree Vidya, Condon, Christopher. “Value Line Settlement Marks End of Buttner Reign.” (2009). Bloomberg. Retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPpxj3FdB0uM

Landers, Guy. “What is Sarbanes-Oxley?” (2003). McGraw-Hill. New York, NY

Louwers, T. Auditing & Assurance Services. 5th edition. (2013). McGraw-Hill