Sarbanes-Oxley Act of 2002 – Some explanations 7 years later

This article presents some explanations about the Sarbanes-Oxley of 2002 seven years after its enactment by the United States of America.

As a result of the recent economic behavior of some person (entrepreneur or accountant) or company (such as Enron or WorldCom), the United States of America realized the need to put into force a new federal legislation: the Sarbanes-Oxley, supervised by the Board of Accounting Supervision of Public Companies. This law prohibits many transactions; including selling shares when there is a blackout period or company loans to executives. Tea Sarbanes-Oxley it has the same ultimate goal as the Securities and Exchange Commission (SEC), which was established a few years earlier. That said, having public support is a sine qua non for the Sarbanes-Oxley Act to be effective, and then Congress will act on it.

Even if the fallout from Enron for investors remains very large (we’re talking billions of dollars), and governance reform was inevitable, post-Enron reform stalled in Congress. However, there was strong lobbying to continue with the post-Enron reform. Several politicians had mentioned that intervening would create a lack of confidence in investors, against the principle of the free market. On the other hand, those same politicians transformed their ideas when the media got involved. Sarbanes-Oxley It is the effect of these political changes that were initially against.

Tea Sarbanes-Oxley attaches great importance to the quality and independence of an audit by increasing the authority of the audit committee on the Board. It also reflects its importance due to the fact that each member must be independent (not receiving some benefits from other firms or companies). This will also strengthen the independence of the accountant. The price of the audits will increase, but the benefits are improved. Tea Sarbanes-Oxley requires even more, it requires that your CEO and CFO certify each annual or quarterly report filed based on their knowledge. This will hold the CEO or CFO more accountable and will hold them accountable if such statements turn out to be false. He too Act requires a disclosure of all off-balance sheet transactions. Let’s not forget that a rule of business judgment will not be construed as a false statement. Without a rule of business judgment, a businessman would be really reluctant to sit on an executive committee in any company. Indeed, the object of Act is to punish fraudulent business decisions, not those made in good faith. The way to enforce such a sentence is in the Sarbanes-Oxley by allowing the power of control that is granted to the Board.

As mentioned before, Sarbanes-Oxley created a Supervisory Board that has different tasks, including setting standards for auditors, inspecting public accounting firms, imposing sanctions, etc. The composition of said Boards reflects their independence (where only 2 out of 5 members can be current or former certified public accountants). However, since Board leadership is important, some political issues arise when it comes time to appoint a Board President. However the Sarbanes-Oxley today it is well implemented.

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