Sarbanes Oxley Act Of 2002 And The Effect On The Business Environment

2856 words - 11 pages

The Sarbanes - Oxley Act of 2002 is the most important piece of legislation since the 1933 and 34 securities exchange act, affecting everything from corporate governance to the accounting industry and much more. This law was in direct response to the failure of corporate governance at Enron, Tyco, and WorldCom. The Sarbanes - Oxley seeks to bring back the confidence in all publicly held corporations to the shareholders, while placing more responsibility on CEOs and CFOs for the actions of the corporation. "Sarbanes - Oxley is more than just another piece of legislation - it has become synonymous with a new culture of corporate accountability and reform1." The SOX, as it has come to be known, covers a myriad amount of corporate responsibilities. The law has eleven sections, each with a varying amount of subsections. Each title has tremendous effect on the business and legal environment, with titles ranging from auditing, inspection of registered public accounting firms, accounting standards, establishment of an accounting oversight board, auditor partner rotation, corporate responsibility for financial reports, and probation to personal loans to executives, among others.Sarbanes - Oxley was signed in July 2002, by President George W. Bush. The authors of the law are Paul Sarbanes and Michael Oxley. Sarbanes is the longest serving U. S. senator in Maryland history, having won his fifth term in 2000. He received his undergraduate degree from Princeton University, and a Harvard law degree. Sarbanes is the senior Democrat on the Senate Banking, Housing, and Urban Affairs Committee. Representative Michael Oxley was elected to the Ohio House in 1972 at the age of twenty - eight. Oxley has his undergraduate degree from University of Miami in Oxford, Ohio, and received a law degree from the University of Ohio. He is now the chairman of the House Committee of Financial Affairs.The largest part of the Sarbanes - Oxley Act is not all the sections that it covers in the law, not who signed it, or even authored it; it is how corporations will comply to this extensive piece of legislation.Enron, Tyco, and WorldCom all were under much scrutiny in the last couple of years because of personal loans given to executives for personal use. SOX bans the use of nearly all personal loans. These loans that corporations would give out to their executives were not really loans at all, but large sums of money, not expected to be paid back. The executive loaned the money, was expected to stay with the company for a certain period of time and then the loan would be forgiven. This in a sense is basically free money, given to an executive to do with what he/she pleased. Although, most executives would reinvest the money in the company by buying large amounts of stock shares and sell them when the price was much higher than the purchase price. This practice often times inflated the stock price, or hurt the traditional public share holder. In a recent case that occurred before the...

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