Question

Discuss two of the key titles or provisions of the Sarbanes-Oxley Act in terms of the importance of these provisions and their impact on corporate governance and accountability.

Does the Sarbanes-Oxley Act go far enough in light of the ongoing repercussions of the 2008 financial crisis?
Discuss modifications would you make to this act and your rationale for such legislation.

Answer 1

Answer :-

SOX refers to Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting reform and Investor Protection Act of 2002, is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron and World Com. The Sarbanes-Oxley Act (commonly called SOX) establishes a new quasi-public company, the Public Company Accounting Oversight Board (PCAOB) for overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies.

The Sarbanes-Oxley Act's major and important provisions include the following :-

1). Creation of the Public Company Accounting Oversight Board.

2). A requirement that public companies evaluate and disclose the effectiveness of their internal controls, as they relate to financial reporting and that independent auditors for such companies "attest" to such disclosure.

3). A requirement that the companies listed on stock exchanges have fully independent audit committees.

4). Certification of financial reports by chief executive officers and chief financial officers.

5). Ban on the most personal loans to any executive officer or director of the listed public company.

6). Accelerate reporting of the insider trading practices.

7). Significantly longer maximum imprisonment sentences and larger fines for corporate executives who knowingly and willfully misstate the financial statements.

8). Prohibition of insider trades during the pension fund blackout periods.

The Sarbanes-Oxley Act also requires that the monitoring function (including monitoring of work performed by management of public companies, Review of effectiveness of internal control system of the public companies etc.) must be done by an independent outside auditor so that auditor independence, effective corporate governance and system of enhanced financial disclosure can be maintained very effectively as well as efficiently.