What will be the Effects of the Sarbanes-Oxley Act?

In recent years, scandals have filled the news with horrifying dishonesty from many corporate officials in high power positions. In the end of 2002, a new law was passed through legislation of the United States that monitors the activities of law and accounting firms. This action was taken due to illegal “paper shredding” of financial documents. With these documents becoming non-existent, firms could misrepresent the earnings and financial statistics of the company and make it appear to be performing better than it really is. Through several large scandals, these large companies have shattered the images of corporate America in the public eye.

Business today is different from what it was in the past. At one time the decisions of a company were known to be performed in good faith. However, in this business age cutting corners is often a path to quick success. This more often is seen from large scandals from executives from the firm itself or its accounting firms responsible for their financial statistics. When the financial documents are destroyed, the firm can then

Skeptics have aroused from many industries, but many of the critics of the new plan are the lawyers and accountants for the publicly traded firms. One of the strongest arguments against the new plan is that it turns the focus from helping their customer into being a whistle-blower. This in case would disrupt the not only the trust level between the firm and its auditors, but disrupt the conglomeration of teamwork between the two parties. Alfred Carlton Jr, president of the American Bar Association added, “It would be tragic if we squandered this golden opportunity to fashion the most effective measures that offer real protections to investors in favor of quick but illusory and ineffective fixes, some of the proposed rules of practice represent profound changes in who is viewed as practicing securities law” and that “We ought not to proceed at breakneck speed.”(Ackman, 2003)Many other people find the necessity to record insider trading amongst a regular 15 member board would not only be difficult but yet also time-consuming. Another relating question is that “As a company, how are you going to know in time if an officer is traveling and calls his broker?”(Forbes, 2002 September 10) Most of the arguments against the new plan are that it is not practical or feasible for fast-paced big business.

On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act. This act gives the power to the government to monitor the actions taken in publicly traded companies. This act is to be enforced by a governmentally funded board, made up of five members; the board will oversee and investigate the auditors of publicly traded companies. (AICPA,Sarbanes-Oxley)The board has been designed into a certain structure. Two of the five board members must have been CPA’s. The other three cannot have been CPA’s. Ethics has been a continuing focus for the Board to pay attention to in order to boost corporate responsibility. This new law has changed the relationship between accounting firms and their publicly held audit clients have changed in many ways. One of the largest differences is that now Auditors report to an Audit Committee instead of management. These actions insure that information of the auditors whether bad or good will not be affected due to a difference in interest. If wrongdoing or negligence is suspected by an auditor or lawyer for a company, the auditor must report the illegal dealings and if no action is taken to correct them, the individual resign, and in effect “quit loudly” and grab attention on the company for unethical decisions. With this act in place, more protection for Whistle Blowers was needed to effectively report corporate crimes on a constant basis. The new law states that a public company may not “discharge, demote, suspend…or otherwise discriminate against an employee who offers information on corporate wrongdoing.”(Ackman, 2002) There will also be new

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