The Sarbanes Oxley Act of 2002

In 2002, U.S. Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.  After the Satyam Scandal in India, the need for such a law arises.
This paper tries to find out the impact and applicability of the Sarbanes-Oxley Act in the Indian Environment. The study tries to find out how far such acts suited in the Indian corporate scenario. To test the possibility we design a well-structured questionnaire filled by Charted Accountants in India. Further, we match up the particular act with different existing provisions of Indian law especially, The Companies Act 1956 or Charted Accountants Act 1949 or SEBI Act 1992.
Keywords: Sarbanes-Oxley Act 2002, Corporate Governance, Enron case, Satyam Scandal

Hervormingen met betrekking tot de auditsector hebben altijd veel stof doen opwaaien. Na een jarenlang proces is het nu zover: de EU verplicht kantoorrotatie. In dit artikel vergelijken we de Europese en de Amerikaanse regelgeving inzake partner- en kantoorrotatie. Beide regelgevers hebben een andere weg ingeslagen en we vragen ons bijgevolg af:  wie draait het meest door? (Te verschijnen in Audit, controle & governance, nr. 21)

Google is a highly regarded global computer services company that has been awarded for its ethical behavior.  This paper explores how the company has responded to challenges it has faced at times in recent years when it has come under fire for its ethical behavior with regard to financial reporting and taxpaying.  Google’s subsequent level of positive ethical decision making is correlated with the company’s reemergence on the Ethisphere Institute’s list of ethical companies in 2014 after a notable three year absence.

ABD’de meydana gelen Enron, Worldcom ve Xerox gibi büyük şirketlerin finansal skandallarından sonra 2002 yılında yürürlüğe giren Sarbanes Oxley Kanunu ile özel- likle halka açık şirketlerin denetiminin izlenmesi, denetçi bağımsızlığının güçlendi- rilmesi, şirket sorumluluğunun ve üst yönetim düzeyinde açıklama sorumluluğunun artırılması, halka açık şirketlerin finansal raporlama sürecindeki kalite ve şeffaflığın artırılması ve kurumsal yönetim alanlarında getirdiği düzenlemelerle yeni bir dönem başlamıştır. Tüm dünyada, Sarbanes Oxley Kanunu’nun etkileri yapılan düzenleme- lerle görülmüştür. Türkiye’de ise Sermaye Piyasası Kurulu (SPK) tarafından Sarba- nes Oxley Kanunu’na paralellik gösteren düzenlemeler yapılmıştır. Bu çalışmada, Sarbanes Oxley Kanunu öncesi yaşanan gelişmeler hakkında bilgi verildikten sonra Sarbanes Oxley Kanunu’nun önemli noktalarına değinilecek ve bu kanunun ABD, Avrupa Birliği’ne etkileri açıklanacaktır. Son olarak SPK’nın yaptığı en son düzenle- meler Sarbanes Oxley Kanunu ile karşılaştırılacaktır.
Anahtar Kelimeler: Sarbanes Oxley Kanunu, Bağımsızlık, Denetçi, SPK Düzenle-meleri

The Sarbanes-Oxley (SOX) is an important set of regulations widely employed mostly by the public sector’s board of management as well as public accounting organizations in the United States.1 This paper looks at the SOX Act in details and explains how the act has played an enormous role in the accounting industry to assess its effects to the accounting industry since it was implemented.

Purpose: This study identifies the role of internal control system in good risk management practice with reference to Sarbanes-Oxley (SOX) Act or equivalent Japan-SOX (J-SOX) or Malaysian Code on Corporate Governance, MCCG. Methodology: This case study focuses on a multinational corporation (MNC) hosted in Malaysia. The enterprise's risk management practices to be analyzed. Findings: It was found that the successful implementation of ERM relies on corporate governance, especially periodic monitoring Originality: This study contributes to the literature as an in-depth study providing practical insights in terms of implementation of enterprise risk management in the industry on importance of internal auditing in managing risk.

In September 2011, the European Union Commissioner Michel Barnier explained that there are weaknesses in the way the audit sector works today and the crisis highlighted them . Such weaknesses were not detected for the fi rst time: a few years earlier the problems of the audit sector emerged when Enron collapsed and the chicanery of its auditor Arthur Andersen was revealed to the markets. Since then, auditors and audit fi rms, namely, the Big Four have been subject to the long standing debates not only in the academic world but also in a number of European laws and regulations. This article examines the role of auditors in the global fi nancial crisis of 2008 and whether they actually failed in their role.

Insider-owned firms pursue U.S. cross-listings following periods of extraordinary performance. However, the long-run post-cross-listing abnormal returns become negative only for insider-controlled cross-listings. We find that the Sarbanes–Oxley Act (SOX) has mitigated the market-timing attempts as negative abnormal returns are limited to the pre-SOX period, supporting a cross-listing bonding benefit after U.S. securities regulation was enhanced. In addition, investors anticipate future operating performance as stock returns incorporate forthcoming operating outcomes one and two years ahead. Whereas capital-raising cross-listings show better operating performance than non-capital-raising, the returns of capital-raising firms are more sensitive to the potential agency problems created by insider-ownership.

This Chapter, which will appear in The Cambridge Handbook of Investor Protection, ed. Arthur Laby (Cambridge University Press, 2021), argues that there is a strong case for imposing gatekeeping duties on lawyers and reviews the growing body of empirical studies in the accounting and finance journals that partially illumine whether lawyers will act in ways that ultimately inhibit managerial malfeasance and benefit public investors. This Chapter briefly describes the traditional gatekeeping theory, the key elements of a gatekeeper enforcement strategy, and the principal attributes commonly ascribed to gatekeepers. It explains why the designation of lawyers as gatekeepers has been so controversial and argues that the case for imposing gatekeeping obligations on both outside and in-house lawyers is strong in light of the economies of scope that can be exploited from adding gatekeeping to the tasks that lawyers already perform for their clients. It then specifically addresses the potential efficacy of in-house lawyers as gatekeepers.
On the issue of whether lawyers make effective gatekeepers, this Chapter finds that the empirical evidence is both complex and mixed, but that the weight of the evidence generally supports that general counsel are effective (albeit conflicted) gatekeepers, who appear willing to police material illegalities but who also tolerate a good deal of aggressive and perhaps unethical conduct. The more limited evidence about outside lawyers suggests that they may be less likely to press their client representatives to comply with the law, opting instead to perform their strictly advisory role as neutral risk-assessors. Nonetheless, their involvement in disclosure matters appears to generate some salutary, longer term effects, demonstrating perhaps a net benefit to public investors.
Finally, this Chapter reviews the findings of one study, which highlighted the promising gatekeeping potential of board members with legal backgrounds. It raises the possibility that appointing lawyers to the board may offer the best strategy for promoting compliance within the firm and deterring corporate malfeasance. It calls for further research to be conducted on the efficacy of these understudied legal gatekeepers.

“Moody’s Credit Ratings and The Subprime Mortgage Meltdown” reviews the 2008 financial crisis and the impact to homeowners by investment firms, lenders and other market and nonmarket stakeholders.  Moody’s CEO, Raymond McDaniel, created an environment within the organization that put greater value on increasing market share, improving shareholders return on investment and being primarily driven by bottom-line results.  Moody’s business model started changing in 1975 as a result of the Securities and Exchange Commission (SEC) designating Moody’s, S&P and Fitch as Nationally Recognized Statistical Rating Organizations (NRSRO’s), giving each organization a quasi-regulatory role.  As a result, Moody’s and the other two organizations started charging bond issuers to rate their products.  This created a conflict of interest for Moody’s and the other two rating agencies; bond issuers started to shop for the best ratings from the three agencies.  The rating agencies, in turn, failed to meet their obligation to provide independent, objective ratings on the financial instruments they were paid to rate (Lawrence & Weber, 2011, pp. 454-456). 
    This failure to provide independent, objective ratings was evidently clear during the housing bubble that occurred during the past decade.  Structured finance products like residential mortgage-backed securities (RMBS) became very popular as they appeared to supersede poor returns in the markets and the Federal Reserve Bank’s low interest rate policies.  The RMBS’ were highly sought after because of their higher than normal returns. These instruments consisted of bundled home loans purchased by investment banks, then the creation of a pool of home loans that appeared to be bond equity.  The problem with RMBS’ was that there was little transparency and they required sophisticated systems to securitize (Lawrence & Weber, 2011, pp. 456-462).
    The popularity of the RMBS’, public policy that promoted home ownership, and home financing products that allowed for questionable loans created an atmosphere that lacked oversight.  Moody’s showed little restraint in this environment and jumped right into the housing bubble market.  In the five years, leading up to 2006, structured finance instruments drove almost 40% of their revenues, and resulted in leading operating margin performance amongst companies in the S&P 500 for five straight years (Lawrence & Weber, 2011, p. 456).  Because of Moody’s financial success, CEO Raymond McDaniel, enjoyed a salary of $7.4 million.  Under his leadership, the organization was primarily applying the ownership theory versus the stakeholder theory (Lawrence & Weber, 2011, p. 6).  Moody’s may not have broken the law, but they clearly did not reflect the ethics and leadership the public needed from them during the period leading up to the financial crisis.

The Sarbanes Oxley Act of 2002 (SOX) introduced several governance reforms that considerably increased the total risk exposure of CEOs. We examine the effects of these regulatory changes on compensation contracts of CEOs and their effect on risk taking subsequent to SOX. We find that while overall compensation did not change, salary and bonus compensation increased and option compensation decreased following the passage of SOX. The sensitivity of CEO’s wealth to changes in shareholder wealth also decreased after SOX. These results indicate that the pay for performance sensitivity of CEO compensation has declined following SOX. Our results indicate that these changes reduced investments in research and development, and capital expenditures. We also document that the above changes in CEOs ’ pay for performance sensitivities and their risky investments following SOX are associated with a reduction in stock return volatility. However, we do not find any evidence indicating that these ch...

Accumulating evidence suggests that several recent regulations enacted by Congress and the SEC, including the Sarbanes-Oxley Act, have disproportionately burdened smaller public companies in a negative manner, such that many of these companies are exiting the public markets. This Article describes these regulations, reviews their effects, and proposes several options that the SEC might choose to address the imbalance of costs and benefits for small businesses. The simplest option would provide for a waiver or postponement of certain regulations imposed under the Sarbanes-Oxley Act More significant possible measures include the expansion of the SEC's small business regulatory regime under Regulation S-B, and the creation of a securities market for small-business issuers.

SARBANES OXLEY ACT, Secretary Pompeo states, " Their books are not wide open." This is why we do not get to discovery as when one brings in the Sarbanes Oxley Act the Pandora's box of hidden criminal actions cannot be shut back in. Once the evidence of fraud is out of the box we win. It is time we all think outside that box and hold our public servants accountable to acting in law, not under the color of it or outside of it as they look the other way and help steal our lives. Converting our estates into pirated credit of our beneficial interest. http://www.soxlaw.com

Opining from my experience and research findings, my conclusion in all this is that the cases must be brought as breach of contract-RICO-TORT causes identifying the Sarbanes-Oxley Act as well as other causes, this is also why our Petition of Remonstrance is so very important as it holds the Legislative Branch accountable in law, not the ones they extort but the ones in place for the banks and to protect our countrymen and women.

The STATE Governors have been taking $$ to allow the foreign involvement, yes foreign, the Banks are foreign on the States and as such the Governors have to sign off on their involvement. (Listen to Pompeo's speech to the governors two weeks ago link here https://youtu.be/g1BbswU3i10 if you go to 14:47 the Sarbanes Oxley Act is mentioned!). It is a huge ponzi scheme and is why our two first impression cases attacking this are so important. LISTEN to his entire speech with an open mind and hear the words he uses, maybe write some down and review their consequences IN law. https://youtu.be/g1BbswU3i10 if you go to 14:47 the Sarbanes Oxley Act is mentioned by Secretary Pompeo. THE BOOKS ARE NOT WIDE OPEN!! http://www.soxlaw.com

We cannot continue to allow the foreign usurpation by China or any foreign entity bank such as Wells Fargo, Bank of America, BONYM et al. The Governors get lobbied by the bankers and other foreign agencies or countries and the people on the States are pirated as the Judges and Public Servants are awarded financially.

The audit function in a corporate model can be a defective tool in monitoring executive management. Arguably, the Sarbanes-Oxley act (SOX) inadvertently has placed auditors in unwanted positions while increasing their independence. Auditors' reliance on their clients for collecting information, financial dependence, and self-bias in processing information restrain them from neutrally and objectively judging corporate reporting. Mandated rules can never substitute integrity and the desired objectivity by shareholders. By reconceptualizing the result of the relationship as a general partnership where trust plays a critical role, this study considers the relationship between management and their auditors, offers an explanation about the audit firms' behavior, and offers reasons for the failure of some audit for committing unethical actions. The analysis leads to testable empirical and policy implications. Accounting theorists should be on board critiquing and retheorizing positively but not normatively: A corporation with the absence of an objective party that shareholders count to attest corporate reporting impartially.

Rapid change is quickly transforming the practice of internal audit raising significant issues for audit leaders and their chief stakeholders. As I highlighted in the article “Internal Audit Changing Expectations,” written for the “Financial Audit” Journal (published in April 2009), there is a clear gap between the current focus of many internal audit functions and where they need to set their sights in order to deliver greater value to their stakeholders.

Since the passage of the Sarbanes-Oxley Act (2002), internal audit groups have been concentrating on financial and compliance risks, traditional areas of focus where their confidence levels are typically high. Consequently, to address the rising expectations of their chief stakeholders, internal audit groups tend to sharpen their focus on strategic, operational, and business risks.

Within the article I concluded that, throughout the next years, the value of controls-focused approach is expected to diminish as internal audit tends to adopt a risk-centric mindset. Study results indicate that five identifiable trends – globalization, changes in risk management, advances in technology, talent and organizational issues and changing internal audit roles – will have the greatest impact on internal audit in the coming years.

This paper critically assesses recent international developments in corporate governance, other competing factors and variables and the role these dynamics play in achieving corporate governance convergence in the context of the recent global financial crisis.

“The impact of Sarbanes-Oxley Act on Romanian companies” is an article written for the “Financial Audit” Journal in July 2008. The article evaluates the benefits of the Sarbanes-Oxley Act for shareholders by studying the lobbying behaviour of investors and corporate insiders to affect the final implemented rules under the Act.

All over the world, regulatory pressures have overshadowed the risk management function for the past few years and we may see a high impact on Romanian companies as well. SOX compliance brings high regulation costs as well as competitive benefits such as improved ability to prevent, quickly detect, correct, and escalate critical risk issues, reduced cost of risk management by improved sharing of risk information and integration of existing risk management functions.

However, SOX compliance not only refers to financial side of corporations, but also to the IT departments considering the corporations’ electronic records and access rights. The lack of controls over spreadsheets has been a contributing factor in financial reporting errors at a number of companies. In this article, you may find examples to highlight the importance of understanding how spreadsheets are used in a company’s financial reporting process and evaluating the controls over spreadsheets as part of the company’s overall Section 404 process.

Más que el pecado sexual, la deshonestidad y la estafa financiera practicada por líderes de la Iglesia de Cristo en la era moderna han causado más descrédito – y por lo tanto al evangelio – que cualquier otro pecado. La fe del creyente es sacudida y los no creyentes ven esos escándalos como evidencia de que los mensajes comunicados desde el púlpito – aun aquellos del Cristo crucificado y resucitado por los pecados de la humanidad – son sospechosos, y en el peor de los casos un timo mas para robar los bolsillos de alguien. Este ensayo sugiere un sendero íntegro para el manejo de las finanzas en la iglesia local al amparo de regulaciones estandarizadas en buenas prácticas financieras aceptadas globalmente.

In September 2011, the European Union Commissioner Michel Barnier explained that there are weaknesses in the way the audit sector works today and the crisis highlighted them. Such weaknesses were not detected for the first time: a few years earlier the problems of the audit sector emerged when Enron collapsed and the chicanery of its auditor Arthur Andersen was revealed to the markets. Since then, auditors and audit firms, namely, the Big Four have been subject to the long standing debates not only in the academic world but also in a number of European laws and regulations. This article examines the role of auditors in the global financial crisis of 2008 and whether they actually failed in their role.

We study the organizational impact of internal control systems, by examining 1,593 firms with 15,606 executives over 2002-2010. We find that internal control systems explain a significant amount of executive and, in particular, CFO compensation, after controlling for other governance, executive personal characteristics, firm, and macroeconomic determinants of pay. Moreover, the negative relationship between pay and internal control systems suggests that executives operating in firms with ineffective internal control systems earn greater compensation. The results of the longitudinal analysis suggest that firms with ineffective internal control systems have greater agency problems and, consequently, greater levels of executive compensation. The CEO pay shows a nonsignificant relationship with internal control systems.