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    What is the Sarbanes-Oxley Act of 2002?

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    What is the Sarbanes-Oxley Act of 2002?
    Why was it enacted?
    How did it affect the reporting requirements for U.S. companies?
    How does it affect small business owners like Dan Brown?
    Make sure that you describe what this act actually is, how it changed the way certain items are reported, and how this act affects small business owners.

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    Solution Preview

    Let's take a closer look at each question, which you can then draw on for your final copy. Be sure to write you final report in your own words. I also attached one article dealing with the effect of SOX (2002) on private corporations.


    1. What is the Sarbanes-Oxley Act of 2002?

    The Sarbanes-Oxley Act of 2002 is a United States federal law. It is legislation that was introduced proposing changes to regulating the financial practices as well as regulations pertaining to corporate governance, auditor independence, internal control assessment, and enhanced financial disclosure. It also sets several deadlines for compliance. This piece of legislation is named after its two major contributors that of Senator Paul Sarbanes and Representative Michael Oxley. The act arrangement is under eleven section or titles; however, some of the sections of the Sarbanes-Oxley Act of 2002 are considered to be more important than others, mainly 302, 401, 404, 409, 802 and 906 (discussed more fully below or see full act available on-line at http://www.law.uc.edu/CCL/SOact/toc.html).

    SOX was a swift reaction to public outcry following corporate scandals, Congress imposed new obligations on directors, executives, lawyers, accountants, and many other entities. Many argue that this was done without due consideration to the Act's possibly adverse effects.

    2. Why was it enacted?

    The Sarbanes-Oxley Act of 2002 was introduced following a number of court cases of fraud and mismanaging of financial statements by major corporations (e.g., Enron and others). It was deemed necessary because it was quite obvious from the growing number of corporate scandals and resultant public outrage that the corporate world needed more oversight as more and more questionable corporate acts and financial manipulations took center stage in the media and the courts. This means that the quick response of Congress-and the Sarbanes-Oxley Act of 2002 (SOX) was created mainly bolster the public's confidence in corporate governance and financial reporting of the public companies mainly through rebuilding public trust in corporations and capital markets (Rezzy, 2007, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=978834).

    In other words, the new law was in reaction to several main corporate and accounting scandals, such as Tyco International, WorldCom, Enron, Peregrine Systems, and Adelphia, Peregrine Systems. Corporate scandals like these were devastating to the investors and shareholders, who lost billions of dollars with the collapse of these major companies, or because some of the companies ended up claiming bankruptcy and the CEOs and financial management came before the courts-and some were prosecuted,, found ...

    Solution Summary

    By responding to the questions, this solution addresses related aspects of the Sarbanes-Oxley Act of 2002. References and a supplementary article on applying SOX to a small business are also provided.