Sarbanes-Oxley Act Essay

Sarbanes-Oxley Act


Sarbanes-Oxley Act was enacted by the senate on 30th July 2002 and it was aimed at protecting shareholders as well as the American citizens from cases of fraudulent and accounting scandals. To this effect, the Act plays important role in the entire management of various companies in terms electronic records of the company as well as the financial departments of the company. According to this Act, all the records in the company must be saved for more than five years and companies that fail to comply with this Act face hefty fines or alternatively its stakeholders face imprisonment. This paper will analyze some of the acts, laws and publications that have been designed by the federal government to enhance or to replace Sarbanes-Oxley Act (Anand, 2006).

Over the past few years, there have been a number financial scandals and the loss of market values which has affected Sarbanes-Oxley Act of 2002. In response the congress has made a number of amendments to the existing acts and laws of the United States of America. Typically, these proposals, acts, and laws have in one way or another regulated or improved the Sarbanes-Oxley Act of 2002. A good example of the proposals made is the internal regulations which are imposed on the companies that are competitors in relation to the Sarbanes-Oxley Act of 2002. In this respect, the rules under various internal regulations make it easier for managers to supervise the objectives of their company as well as its employees.

In addition to that, those rules and regulations which relate to accounting principles in the company make it easy for the external investors to financial performance of various companies that are constantly competing with one another in the industry. On the other hand, these proposals have regulated the Sarbanes-Oxley Act in a number of ways for instance a situation whereby these proposals are over-inclusive and under-inclusive then the Act fails to address some of the potential problems of different companies or corporations.

Furthermore, the federal government has proposed a two approach system that’s geared towards regulating the Sarbanes-Oxley act of 2002.In this respect the government proposal (GASB) requires that there is need for the recognition of the outflow resources for state government’s pension contribution from the measurement date and the beginning of financial year for its implementation. The Public Companies Accounting Oversight Board (PCAOB) is one of the enactment that was aimed at improving Sarbanes-Oxley Act of 2002. This enactment established ethics, rules, and independence standards to be followed by companies or firms in the country. PCAOB has been mandated to conduct inspection of various companies on yearly basis thus this makes the auditing process transparent because it is being discussed in the public media. On the other hand, the whole process of PCAOB is indeed burdensome to those people who are involved in the whole process. In this respect, a lot of documenting is conducted where the personnel involved review all the systems involved.

In addition to that, the Finance Executives International (FEI) enhances SOX Section 404 costs. Reports indicate that, since the 2004 SOX Section 404 costs have been declining and in 2006 about 200 companies that were having average revenues of $6.8 million that were a decline of 23% as compared to the costs of 2005. In the positive side, FEI has improved the confidence of investors because it has given more powers to SOX when it comes to Fraud prevention.

In 2006 the Ribstein/Butler was established and this book made a comprehensive proposal for the reformation or repeal of Sarbanes-Oxley Act of 2002. This proposal stated that investors in US can diversify their stock in the investments that they make thus this has helped to manage all the risks that companies face as a result of natural catastrophes that emerge as a result of competition or fraud. On the other hand, each company or firm is required by the proposal to spend some money in order to comply with SOX Act. In this respect, publicly traded companies in US cannot diversify their activities as investors do (Vallabhaneni & Association of Professionals in Business Management, 2008)

In 2007, Foley &Lardner Survey was conducted and its reports affected SOX Act significantly. This survey majored on various costs in US that included: board compensation, legal costs, lost productivity, directors and officers insurance among others. Between the 2001 and 2006 these costs increased significantly and Foley $ Lardner Survey indicated that those companies whose revenues were below $251 million were to be exempted from section 404 of SOX. Although this survey contributed significantly to the performance of various companies in US some of the underperforming companies (Prentice & Bredeson, 2010).

SB1262 Nonprofit Integrity Act was passed in 2004 in California and this act has greatly impacted Sarbanes-Oxley Act of 2002. This law requires that companies whose revenues are more than $2 million should be independently audited by a selected committee or board of members. This act emphasized transparency and accountability in each organization that was guided by the Sarbanes-Oxley Act of 2002. As a result of this, many people and professionals have been calling for the reformation of the Sarbanes-Oxley Act of 2002 however these calls have been muted and the act remains in place (Anand & Wilkinson, 2008).

Generally Sarbanes-Oxley Act has played a vital role within the American society as it guides investors in various sectors of the economy. To this effect, the above mentioned government regulations in terms of laws, acts, and proposals have been developed and they are geared towards regulating and enhancing Sarbanes-Oxley Act.


Anand, S. (2006). Sarbanes-Oxley Guide for Finance and Information Technology Professionals. Hoboken: John Wiley & Sons.

Anand, S., & Wilkinson, J. (2008). The Sarbanes-Oxley act: An introduction. Zaltbommel: Van Haren Publishing.

Prentice, R. A., & Bredeson, D. (2010). Student guide to the Sarbanes-Oxley Act: What business needs to know now that it is implemented. Mason, Ohio: South-western/Cengage Learning.

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Vallabhaneni, S. R., & Association of Professionals in Business Management. (2008).Corporate management, governance, and ethics best practices. Hoboken, N.J: Wiley.

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