The Sarbanes-Oxley Act was a daring attempt to legislate morality with the intentions of restoring integrity with the public in financial markets. The Sarbanes-Oxley Act is a direct result from corporate scandals like WorldCom, Enron, Adelphia, and Tyco, which succeeded in the collapse of these major corporation and ruined people’s lives. The mistreatment of employees and investors by flagrantly unethical business practices cost some their life savings and retirement portfolios while others went to jail because they were part of the scandals.
The provision regarding ethics in business contained within the Sarbanes-Oxley Act help to ensure and deter unethical business practices. There are two particular provisions that have a big effect on organizations on their ethical decision making. The first is the requirement corporations must create a code of ethics for senior financial officers that include enforcement mechanisms and the regular rotation of outside auditors.
There are other requirements such as Section 303 “improper influence on conduct of audits,” Section 306 “insider trades during pension fund blackout periods,” and Section 307 which state “rules of responsibility for attorneys,” (Orin, 2008) but the first two mentions have the power collectively to regulate corporations internally and externally. The Code of Ethics is a schematic for each corporation for governance within the organization to regulate and set acceptable standards for directors, officers, accountants, and employees.
... the article How Sarbanes-Oxley Section 406 Has Impacted Corporate Ethics (2005), the Section 406 of the Sarbanes-Oxley Act of 2002 ... substantive content. (How Sarbanes-Oxley Section 406 Has Impacted Corporate Ethics, 2005) However, since the Act has been brought into ... ethics in the company's daily business practice. References Bumiller, E. (2002, July 31).Bush Signs Bill Aimed at Fraud in Corporations ...
The mandatory rotation of auditors ensures the organization has a truly independent audit that allows auditors to question and criticize business practices of the corporation experiencing the audit. The SOX should have went one step farther by mandating audit –firm rotation rather than just rotation of the lead person doing the audit, which would ensure complete independence of the audits. The rotation will ensure if one auditor misses unethical practices or is part of it will be discovered and discontinue with the rotation.
The out-of-pocket expense for compliance has many critics who say this is an unfair burden on corporations; however have made significant strides against unethical business practices. The criminal penalties for which the act provides includes fines, imprisonment, loss of exchange listing, and loss of D&O insurance depending on which section of the SOX the corporation is out of compliance with. The CFO or CEO who unknowingly submits a wrong certificate could be fined up to one million and up to 10 years of prison, if knowingly then he or she could be subject up to five million and up to 20 years imprisonment.
“The ultimate incentive, which may prove to be the sine qua non, is that a failure to do so could expose them to the disastrous possibility of being deemed to have embraced these historical problems and to become accountable for them as their own” (Orin, 2008).
The Sarbanes-Oxley Act was drafted by Representative Michael Oxley and Senator Paul Sarbanes, which was intended to protect investors by ensuring/improving the reliability and accuracy of corporation’s disclosures of corporate financial performances.
The SOX ensures that executives are held accountable for all financial issue even if unknown, forcing them to become more involved and monitor the accuracy of what is being reported to be true and accurate. References Orin, R. M. (2008).
Ethical Guidance and Constraint Under the Sarbanes-Oxley Act of 2002. Journal Of Accounting, Auditing & Finance, 23(1), 141-171. SOX-Online, (2012).
Sarbanes-Oxley essential information. Retrieved from http://www. sox-online. com/basics. html
... subjecting those practises to the standards required by SOX. Sarbanes Oxley Act 2002: The Burden it places on companies ... SOX. This would create a monopoly in audit services furthermore increasing the price they charge to public companies. Conclusion While the Sarbanes Oxley ... law in July 2002, the Sarbanes Oxley Act encourages managers and auditors to ensure that the information on the financial ...