The Sarbanes-Oxley Corporate Reform Act 2002 Essay
The Sarbanes-Oxley Corporate Reform Act 2002
The Sarbanes-Oxley Corporate Reform statute was passed by the United States Congress in the year 2002 before the midterm elections, the principal goal of the Act being to rebuild investor confidence and to protect capital markets at a time when huge corporate governance debacles plagued America. The front page headlines around the nation were reading that firms such as Worldcom, Enron, Global Crossing and Arthur Anderson had failed to meet their investors’ expectations of straightforward transparency in financial affairs. The Sarbanes-Oxley Act specifically empowered the Securities Exchange Commission, IRS, and the Public Company Accounting Oversight Board to handle the problem (“The Sarbanes-Oxley Act and Implications for Nonprofit Organizations”).
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To counter fraudulent accounting practices and executives’ self-dealing transactions the dramatic likes of which were discovered in the cases of Enron and Worldcom, the Sarbanes-Oxley Act was a necessary step taken by the government. In order to increase the accurateness as well as reliability of auditing practices, accounting, and corporate reporting, one of the provisions of the Act is for financial reports to be certified by chief executive officers and chief financial officers of the corporation. In other words, the law holds chief executive officers and chief financial officers directly accountable for mismanagement in financial matters. The validity of a company’s financial statements is the responsibility of these chiefs. In effect, the Act makes them legally accountable for their firm’s financial practices. This means that there are no grounds any longer for excuse-making or claiming ignorance when disaster strikes, as in the circumstances of Enron and Worldcom that entered bankruptcy proceedings (“The Sarbanes-Oxley Act and Implications for Nonprofit Organizations”). What is more, for organizations that are determined about fair dealing to begin with, the Act is a blessing for it allows the chiefs to check managerial fraud better than before.
“The Sarbanes-Oxley Act and Implications for Nonprofit Organizations.” GuideStar - The Sarbanes-Oxley Corporate Reform Act 2002 Essay introduction. 2009. 22
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