The Sarbanes-Oxley Act Analysis

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In 2002, the Sarbanes-Oxley (SOX) Act was passed by congress and signed into law by President George W. Bush. SOX was written as a response to several major accounting scandals that occurred at large companies (including Enron, WorldCom, and Tyco) in the early 2000’s. These scandals forced capital providers and the general public to question the judgement of public accounting firms as well as at the overall reliability of the financial reporting and audit process. The requirements included in SOX were designed to improve audit quality, increase the reliability of financial reporting, bolster corporate governance, and re-establish public and investor confidence in the financial reporting process. Some of the most impactful aspects of the Act …show more content…
SOX requires that a company’s chief executive officer and chief financial officer acknowledge several points including (1) they have personally examined the financial statements (2) the information included in the statement is accurate as far as they know (3) all material facts are included and fairly represented as far as they know (3) they are ultimately responsible for the internal controls procedures practiced by their company (4) they believe their internal controls procedures are effective (5) changes and deficiencies in internal controls have been reported (EY). By forcing executives to personally certify documents submitted to the SEC for review, the authors of SOX hoped to increase corporate accountability and restore investor confidence in the financial reporting process (EY). Corporate executives who falsely claim that their filings comply with the requirements set forth by SOX and the SEC face harsh civil and criminal penalties (EY). Corporate executives may face up to 20 years in prison or a maximum fine of $5,000,000 for knowingly and willfully certifying false reports (Morrison and

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