Posted: June 15th, 2022

Sarbanes Oxley Act 2002

Sarbanes Oxley Act 2002
The issue of fraud and insecurity is a problem that worries most investors. The US financial markets are market with scandals whereby corporations were not transparent with their investors and things result in chaos. That was the case in 2002 during the Enron Corp and WorldCom Inc. when top executives claimed to be unaware of accounting policies. It was then that congress passed the COX Act to ensure Americans were protected from fraudulent activities and investors regained their security.
The SOX Act was enacted for a number of reasons that would aid in streamlining ethical operations in any corporation alongside increasing transparency to clients. All these aims were to make investors feel more confident with having their money in the financial markets. According to Nichols Curtis (2014), there were three prominent objectives that stood out with SOX to ensure that the said benefits would be achieved. The article is titled “Is the Sarbanes-Oxley Act Working?” and it analyses the impact of the SOX so far. It is fair to first agree that, the independence of auditors was improved such that firms were not allowed to offer non-audit services. Second, SOX was established to address issues in accounting to the extent of creating the Public Company Accounting Oversight Board (PCAOB). This body would then set standards and regulate a corporations accounting standards. Lastly, SOX had the objective to reduce the rates of fraudulent financial reporting hence improving the governance of organization. Activities such as attorneys reporting on fraudulent activity, offering protection to whistleblowers, and offering disclosure regarding codes of ethics for financial officer (Curtis, 2014). These three agendas were labelled as the main reason behind the establishment of the Act in 2002. SOX was a way for Americans to feel encouraged to invest in organizations due to increased transparency.
Even though the SOX Act was created to reduce fraud and increase investor confidentiality, it focuses on both large and small companies equally in terms of compliance and ethics. In another article, Cohn (2017) writes for accounting news and says that the compliance costs for companies are challenging for smaller firms. This has influenced most small organization to avoid going public. As long as an organization remains public, it is not entitled to extra financial checks (Dillian, 2019). Most companies are staying private longer, instead of going public. This way, they are able to avoid extra expenses and longer periods of processing the requirements for the move. This corporate responsibility law has a one-size-fits-all compliance costs which explains the low number of newly registering public traders. The law also promotes ethical standards since it dictates that all relevant personnel such as accountants would be trained on the appropriate conduct. After the 2002 Enron Corp and WorldCom Inc. saga, the accounting sector needed guidelines to steer American companies into the right direction. COX was quickly drafted and implemented to offer a holistic approach to what would be the bipartisan law for publicly trading companies.
In conclusion, the COX Act still stands strong two decades later. Even though the law was drafted and passed really fast, it holds guidelines that may build up to proper ethical standards for an organization. COX has formulated an ethical way for the accounting community to refer to while at the same time protecting investors. The public trading markets have never been the same again.

References
Curtis, N. (2014). Is the Sarbanes-Oxley Act Working? Insurance Net News. Retrieved from https://insurancenewsnet.com/oarticle/Is-the-Sarbanes-Oxley-Act-Working-a-516096#.XpnNnMgzZPY
Cohn, M. (2017). As Sarbanes-Oxley nears 15-year anniversary, ethics fall short. Accounting Today. Retrieved from https://www.accountingtoday.com/news/as-sarbanes-oxley-nears-15-year-anniversary-ethics-fall-short
Dillian, J. (2019). WeWork Reveals the Downside of Sarbanes-Oxley. Bloomberg. Retrieved from https://www.bloomberg.com/opinion/articles/2019-10-11/wework-shows-the-ipo-process-is-broken

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