Question

what are SOX ( Sarbanes Oxley Act) provisions and how have SOX provisions, SEC-related rules, and listing standards influenced the Corporate Governance structure?

Answer 1

Ques: What are SOX (Sarbanes Oxley Act) provisions and how have SOX provisions, SEC-related rules, and listing standards influenced the Corporate Governance structure?

Solution:

The Sarbanes-Oxley Act of 2002 (frequently abbreviated to SOX) is enactment passed by the U.S. Congress to shield investors and the overall population from accounting errors and false practices in the organizations, and in addition enhance the truthfulness of business revelations. The U.S. Securities and Exchange Commission (SEC) governs the act, which sets due dates for compliance and issue rules as and when required.

The Sarbanes-Oxley Act was passed against a chain of high-profile financial scandals that happened in the mid 2000s at organizations including Enron, WorldCom and Tyco that shaken shareholders confidence. The act, drafted by U.S. Congressmen Paul Sarbanes and Michael Oxley, was designed for enhancing corporate governance and accountability. At present, all public companies must act in accordance with SOX (Dowd, K., 2016).

The Sarbanes-Oxley Act influences the financial side of business, as well as IT departments responsible for keeping a record of an enterprise's electronic records. IT departments are progressively assigned with making and keeping up a corporate records stored in a cost-effective manner that fulfills the prerequisites set forth by the enactment. Segment 802 of Sarbanes-Oxley contains the three regulations that influence the administration of electronic records.

The Sarbanes-Oxley Act of 2002 (the "Act") reacts to shortcomings in the U.S. capital markets exposed by the hastening pace of financial restatements and liquidations of some big well known public companies. Even though most requirements by their terms apply only to public organizations, several viewers consider that the accounting and governance practices of private companies, along with the nonprofit organizations have been affected as well.

Since the Act's implementation in July 2002, the SEC has approved or projected major rule making initiatives in light of the Act's requirements, and additionally the agencies own concerns with respect to the completeness of its reporting and exposure system, failures in the corporate governance, investor’s proxy issues, and the reliability of the analyst research process. The New York Stock Exchange (the "NYSE") and The Nasdaq Stock Market ("Nasdaq") have likewise proposed new listing requirements to strengthen the corporate governance standards applicable to listed companies.

In spite of the fact that the Act and SEC rulemaking are specifically relevant for public companies, some of the corporate governance experts believe that the "best practices" reflected in these areas will impact how privately owned businesses and not-for-profit organizations are administered. For instance, moneylenders, insurance agencies, government resource providing agencies and private investors are probably going to concentrate on how organizations and charitable organizations deals with the problem of auditor’s independence, oversight by independent review and remuneration committees, and management certification of financial statements. Calls for inspection of related party transactions, prohibition on insider loans and implementation of codes of ethics and business conduct are also on the rise in the private segment (Haddad, A. E., 2017). New laws implemented or executed in different states have introduced requirements relating to corporate governance that apply to corporations by and large. Civil and criminal punishments related to securities misrepresentation, document destruction and retaliation against whistleblowers additionally apply in the public and private segment.

References:

• Dowd, K. (2016). A Comparison of Accounting Fraud Before and After Sarbanes-Oxley.
• Haddad, A. E., Sbeiti, W. M., & Qasim, A. (2017). Accounting legislation, corporate governance codes and disclosure in Jordan: a review. International Journal of Law and Management, 59(1), 147-176.