Wednesday, February 12, 2020
The Sarbanes-Act of 2002 and its Effects on Businesses Essay
The Sarbanes-Act of 2002 and its Effects on Businesses - Essay Example The Sarbanes-Oxley Act of 2002 was created in order to raise investor confidence in the market. The SOX regulation applies only to publicly traded companies. The act increased the accountability and transparency of the financial information that public companies release. The implementation of SOX was able to reform accounting practices by improving accountability, internal controls, auditor independence, and executive responsibility. The Sarbanes-Oxley Act attended a variety of accounting issues that were of great concern for the investor community. One of the first issues that the Sarbanes-Oxley Act attended was auditor independence. In the Enron scandal, the firm was able to get away with the con due to the fact that its auditor, Author Anderson, was an accomplice in the fraud. In order to deal with a potential situation of conflict of interest between the public firm and the auditors SOX created the Public Company Accounting Oversight Board (PCAOB). All companies that perform audi ts on public companies must be registered with the PCAOB (Pcaobox). Auditor independence was achieved by SOX because since its inception accounting firms that perform audits cannot have other accounting contracts with the audited firm. Public firms are mandated to include an independentÃ¢â¬â¢s auditors report within the annual report of the company. Another measure that the Sarbanes-Oxley Act created was mandatory rotations of auditing firms. Companies auditing a public company can only realize the job for four years, at that time a new auditor must take over the role. A great measure that the Sarbanes-Oxley mandated was the requirement of public companies to create internal control measures.