Sarbanes Oxley Act

The Sarbanes-Oxley Act of 2002 was signed into U.S. law in July of 2002 (NYSSCPA, 2009). This law had a direct effect on accounting practices and accountants not only in the U.S. but across the world. With the passing of this law brought many new practices and penalties to accounting professionals. NYSSCPA notes that the law established a five-member accounting oversight board that only two members of this board can be Certified Public Accountants (CPAs). With the other three members not being accountants this would provide "honest brokers", by doing this the board would be able to keep their integrity intact and still accomplish their task.

The Sarbanes-Oxley Act of 2002 (SOX) has had a dramatic effect on the accounting profession in that it led to the creation of the Public Company Accounting Oversight Board (PCAOB) who is responsible for the seeing the auditing of public companies. (Nichols, L.M. 2006) SOX has also implemented criminal penalties for those who may be "cooking the books" or knowingly lying or hiding financial information of the company or their accountants. L.M. Nichols also goes on to state that SOX was met with skeptics at first however, the act did provide a higher quality and more accurate reporting procedures.

SOX was enacted due to a series of high profile corporate scandals such as Enron and Worldcom financial scandals (Rouse, M., & Spurzem, B. (2007, September). By the enacting of this act, it protected shareholders and the public from accounting errors and fraudulent practices within the large companies. With this act came stiff penalties that range from fines to imprisonment for violations. The fines can range in the millions of dollars and violators can be imprisoned for up to 20 years. Infractions range from lying, destruction of records, to alteration of reports, statements, or supporting documentation.

The SOX essentially made it a crime to have doctored accounting documents and financial statements. It made it harder for large corporations to get over on their investors and shareholders. By the implementations of sanctions, financial penalties, and/or prison time forced accountants and accounting firms for these companies to keep the books honest and make timely and accurate reports.

REFERENCES:

http://www.nysscpa.org/oxleyact2002.htm, 2009

Nichols, L. M. (2006, November). Accounting Practices in U.S. Public Companies, Has the Environment Changed. CPA Journal, (), . Retrieved from http://Accounting Practices in U.S. Public Companies, Has the Environment Changed. (2006, November). The CPA Journal, (), . Retrieved from http://www.nysscpa.org/cpajournal/2006/1106/essentials/p28.htm

Rouse, M., & Spurzem, B. (2007, September). Sarbane-Oxley Act (SOX). , (), . Retrieved from http://searchcio.techtarget.com/definition/Sarbanes-Oxley-Act