SARBANES-OXLEY ACT OF 2002

Sarbanes-Oxley Act of 2002



Sarbanes-Oxley Act of 2002

Introduction

This paper will seek to analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. In order to so it effectively, the discussion will analyze why the new enhanced standards are necessary. Furthermore, the discussion will come to a concluding note by evaluating the benefits and costs of the SOX. There is concern about accountability in all sectors, and it is not limited to entities in the United States. Non-profit practitioners, private and government funding sources, individual donors, clients, and the general public have been involved in conversations about accountability in the Non-profit sector sparked in part by the passage of the Sarbanes Oxley Act of 2002 in the wake of the Enron, Tyco International, and WorldCom fiascos.

Discussion

A conflict of interest may also arise when certifying and filing financial statements. Section 302 of the Sarbanes Oxley Act requires the chief executive officer (CEO) of a corporation to certify all financial reports filed. Organizations in the nonprofit sector are required to file the IRS Form 990. CEOs should fully understand the financial situation of their organization as presented on this tax form. As these documents are made electronically available to the public on a mass scale, it is important that the board and executive officers certify their accuracy. A conflict of interest may arise if the executive certifying these documents also served on the auditing committee, and so executives should remain separate from these tasks.

Protecting Trade Secrets

Years after the enactment of the new or enhanced standards for all United States public company management and public accounting firms that the SOX required, the Sarbanes Oxley Act failed to receive much attention in corporate America. However, in 2005 when R. Mike Halligan, a high-profile trade secrets lawyer, wrote in the National Law Journal, “top managers and the directors should become keenly involved with the rational information security and asset management, to stay away from both criminal and civil accountability under Sarbanes Oxley and shareholder derivative befits for violation of the legal duty to protect the intellectual property,” this created a significant change in attitude towards the Act. (Debra, 2006)

Sarbanes Oxley & Information Security

The SOX requires trade secrets to be identified, classified and valued. These values also need to be publicly reported, as the subject of adequate internal controls, for instance, effective access restrictions. The majority of states have required owners of trade secrets to be able to show that they have taken reasonable measures to protect the information from disclosure. As most trade secrets are both created and stored electronically, the protection of trade secrets is inseparable from other information security measures. (Hamilton and Trautmann, 2002)

Grant Williams (2006), analyzing a report published by the Urban Institute for the Chronicle of Philanthropy, found that the impact, costs, and value of implementing such provisions would vary depending on the size of the organization. (Friedenberg, John and Gloria, 2002) Because larger organizations most of ...