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Sarbanes Oxley Act - Essay Example

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The essay "Sarbanes Oxley Act" focuses on the critical, and thorough analysis of the major issues on the Sarbanes Oxley Act. The scandals such as Enron and world.com have given a new dimension to the corporate scandals in the history of the United States…
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Sarbanes Oxley Act
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Extract of sample "Sarbanes Oxley Act"

It is thought that the management used the SPE to hide the external liabilities from the investors and regulators.

The plan was so wisely crafted that the professional accounting analysts could not find the proper position of the company till the explosion of the bankruptcy bomb.

There are several weaknesses in corporate governance, internal and auditing which are leading to an increase in corporate scandals in the United States. The degree of disclosure of financial information is also the main reason. Mostly the corporate running bodies do not find them answerable in front of any regulatory body; therefore they keep on trying ‘innovative’ ideas for which others have to pay (Maclean, 2005).

Financial information in the form of audited accounts can prevent the system from slipping into corruption (Sunlight is the best detergent), but it is not clear why, for example, a superior US financial reporting infrastructure did not help us detect Enron.

The Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (July 30, 2002), is a United States federal law also known as the Public Company Accounting Reform and Investor Protection Act of 2002 (and commonly called SOX or SarbOx). With the major financial reforms in most of the countries of the world, the Sarbanes-Oxley Act was passed in the United States to deal with the issues such as the establishment of the public company, the level of auditor’s independence, proper monitoring of the accounting practices of the company under a board, corporate social responsibility and enhancement in the financial disclosure to the prescribed level by the act. The law is seen as the major reform after the New Deal passed in 1930. The act revolutionized United States securities laws. The House approved the act with the majority of 423-3 and the Senate by 97-0. The act increased the U.S. Securities and Exchange Commission's powers.

The Sarbanes-Oxley Act requires the companies to make their financial reports certified by the chief executive officers and chief financial officers. According to the act, the Executive officers and directors are not allowed to take personal loans. The act prescribed the companies for the extended disclosure of financial information to improve the shareholder's and stakeholders' accountability.  The act also increased the jail sentence duration and increased the fine amount in case of violence of the securities law or misuse. The corporate executives misstating the financial information will also have to face increased sentence time duration and a higher amount of penalties. The act also prohibited the audit firms to provide any services additional to that of the auditing to the companies they are working for. The compensation of the Chief executives and other higher executives is also required to be reported. The act also accelerated reporting of trades by insiders and prohibited insider trades during pension fund blackout periods (Wikipedia, 2006).

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