Categories of the Sarbanes-Oxley Act of 2002
The monumental Sarbanes-Oxley Act of 2002, often referred to as the SOX, was set out to enhance the practice of corporate governance among the United States corporations. According to Gorshunov et al. (2020), it introduced a regulatory platform for companies to manage their governance operations and counter fraud. The act achieves this through 11 distinct categories. Notably, this paper sets out to discuss the eleven categories and how they apply to businesses.
The first category relates to public companies’ accounting oversight board, which was enacted in the act to oversee public corporation’s audits. The category is responsible for establishing rules and standards for auditing and ensuring compliance is maintained. The second category pays attention to the independence of auditors. Under this category, the aspect of conflict of interest was addressed whereby an auditor conducting auditing services to a client was prohibited from providing any other services to the same client.
The corporate responsibility aspect is addressed in the third category. Under this category, all major executives of a firm are required to bear responsibility for the accuracy of financial reports. The fourth category enhances the aspect of financial disclosure. In light of this category, the number of disclosures that a company is required to make, such as pro forma figures, stock transactions, and balance sheet transactions, was increased. The act requires that all disclosures should be made promptly. The fifth category of the act pays attention to conflict of interest as a measure to enhance investor confidence concerning securities analyst reporting. The category requires that every aspect of an analyst must be reported.
The sixth category of the act addresses the commission for resources and authority whereby various practices should be upheld. The category highlights the various authorities that institutions bear. For instance, it highlights the Securities Exchange Commission’s to eliminate someone from the position of advisor or broker under given circumstances. The seventh category addresses studies and reports. Under the category, specific reports and studies should be undertaken by the securities exchange (Rupp, 2021). They entail reporting and testing various reports of credit rating agencies and accounting firms to ensure no malpractices take place in the securities market. The eighth category addresses corporate and criminal fraud and accountability, whereby concealment and alterations of financial records to cause a desired outcome are identified and punished. Fines are stipulated that include imprisonment terms of up to 20 years. Further, the category protects the whistleblowers by outlining special protections.
The ninth category addresses the white-collar crime penalty enhancement, which is composed of six sections. The category aims to enhance criminal penalties for all white-collar offenses. For instance, the category stipulates that it is a criminal offense to compromise on corporate financial reports certification. This category aims to ensure that quick financial gains resulting from white-collar crimes are outweighed by punishment (James & Lirely, 2022). The tenth category is the mandate of chief executive officers to handle corporate tax returns. The chief executive officers are mandated under the corporate tax returns category to sign all company tax returns. The last category addresses corporate fraud responsibility. Essentially, the category defines all aspects that compose corporate fraud. The guidelines explain the reasoning behind every punishment stipulated under corporate fraud. Further, it offers the securities exchange authority to stop or freeze all dealings that are considered to be extraordinary (Al-Kake & Ahmed, 2019). Overall, the categories of the Sarbanes Oxley Act of 2002 helped in enhancing the social responsibility of firms and the quality of financial reporting as a measure to counter fraud.
References
Al-Kake, F., & Ahmed, D. M. (2019). The role of the Sarbanes-Oxley Act (SOX) in Reducing Agency Costs. Qalaai Zanist Journal, 4(2), 637-673.
Gorshunov, M. A., Armenakis, A. A., Feild, H. S., & Vansant, B. (2020). The Sarbanes-Oxley Act of 2002: Relationship to the magnitude of financial corruption and corrupt organizational cultures. Journal of Management, 21(2), 73.
James, H. L., & Lirely, R. (2022). The propensity to save: The effect of Sarbanes–Oxley Act. Review of Financial Economics, 40(1), 77-96.
Rupp, A. (2021). Securitization and earnings management: evidence from the Sarbanes–Oxley Act. Journal of Financial Regulation and Compliance, 29(1), 44-62.
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Categories of the Sarbanes-Oxley Act of 2002
Review the video Introduction to SOX and Internal Controls.
Write a 2-page paper discussing the 11 categories of the Sarbanes-Oxley Act of 2002 (using APA format) and include a cover page and a reference page. You should have a minimum of three references (and remember to use citations in the text to match the references).
2 pages total (not including cover page or reference page) using the template provided as a guide and not more than 3 pages
Proper APA format on citations and sources
Minimum of 3 scholarly sources.
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