Sarbanes Oxley Act

Table of Contents

Table of Contents1

Introduction2

Scope of the Paper2

Discussion3

Description of the Policy3

History4

Enron Case4

Rationale of the Law5

Character of Law6

Scope7

Entry into Force7

Contents of the Law8

Effects10

Evaluation10

Impact on Information Systems11

Applicability12

Costs of Implementation12

Conclusion and Recommendations13

References15

Sarbanes Oxley Act

Introduction

The Sarbanes-Oxley Act of 2002 is a United States federal law that was devised in response to corporate scandals such as Enron and WorldCom emphasizing on the reliability of corporate reporting. It was named after its author, the chairman of the Committee on Banking, Housing and Urban Affairs of the Senate of the United States, Paul Sarbanes (Democrat), and the Chairman of the Committee on Financial Services of the House of Representatives of the United States, Michael Oxley (Republican). The policy was formed with response to one of the biggest corporate scandal witnessed by Enron. The company hired a team of executives who, through the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Due to such acts, it created havoc in the market and attracted huge amounts of money into the company (Bugariski, 2012). It disguised investors and the market and forced them to take inappropriate decisions.

These was originally two different draft laws proposed by Congressman Mike Oxley (Republican , elected in Ohio) and Senator Paul Sarbanes (Democrat elected in Maryland); the two designs were unified by a bicameral committee and finally approved on 24 July 2002 with overwhelming majority in both houses, and signed by President George W. Bush on July 30.

Scope of the Paper

The paper aims to study and analyze the policy devised as a response to one of the most popular corporate scandal; Enron whereby the company committed a fraud with the help of false financial reporting. The law was devised to deal with this issue and assure that such lapses don't happen again. The study would analyze the policy, rationale for the policy, its implementation and evaluation. Based on the discussion, the paper would entail appropriate conclusion and recommendations.

Discussion

Description of the Policy

The Sarbanes-Oxley Act is a U.S. federal law that has generated much controversy. The law was a response to the financial scandals of some large corporations, such as Enron, Tyco International, WorldCom and Peregrine Systems. These scandals brought down the public confidence in the audit and accounting firms. The law is named after Senator Paul Sarbanes Democratic Party and GOP Congressman Michael G. Oxley. It was approved by a large majority in both the Senate and Congress and covers and sets new performance standards for boards of directors and managers of companies and accounting mechanisms for all publicly traded companies in the United States (Li, 2012). It also introduces criminal liability for corporate boards and a requirement by the SEC (Securities and Exchange Commission), the agency responsible for regulating the securities market in the United States. Supporters of the Act say the legislation was necessary and useful, while critics believe that it will cause more economic damage then prevention.

The first and most important part of the Act establishes ...