What accounting issues did the Sarbanes-Oxley Act of 2002 address?

Changing the Behavior of Senior Corporate Executives & Accounting Professionals

What accounting issues did the Sarbanes-Oxley Act of 2002 address?

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Perhaps laws are the only way to alter unethical behavior of company leadership and accounting firms. The Sarbanes-Oxley Act of 2002 addressed accounting rules and regulations to which public entities must ethically practice and adhere. Ultimately, the passage of this legislation helped reduced public accounting fraud dramatically.

The reasoning behind this legislation came about due to accounting fraud amongst publicly trusted executives, accountants working within publicly held corporations. It is important to remember that this Act only applies to publicly traded entities and not to privately held corporations. The Act requires that senior corporate executives and accounting professionals must follow strict ethical policies which require a significant amount of transparency and oversight. These requirements are governed by the (PCAOB) Public Company Accounting Oversight Board — an entity established by the act, its provisions, the (SEC) Securities and Exchange Commision, and its provisions.

Although there additional paperwork and requirements are necessitated by the Act, the provision was necessary and will at least be effective in deterring many executive and accounting professionals from committing fraud. In addition the act states that outside auditors will need to be brought in to evaluate the reports, findings, and rule out any type fraud being committed by the organization. As another part of the internal controls mandated by SOX, CEOs must now sign-off on completed tax records and this makes them accountable for fraud (Kimmel, Kieso, & Weygandt, 2012). These new policies have altered the internal accounting controls for all public companies and made them more ethical in accounting practices. Companies that abide by the act and show that they are in compliance can be trusted more than nonpublic companies that do not need to abide by the Act.

Consequences for Certified Public Accountants & Public Accounting Organizations

There are several major fraud and unethical practice provisions contained in the Sarbanes-Oxley Act, most notably rendering an opinion based upon unethical practices a criminal offense. The behavior is punishable by jail time and by fines. Unethical accounting affects the profession by destroying professionalism. When individuals cannot trust companies and professionals to give them objective advice and to provide honest data that is unbiased then the accounting profession suffers from fear and reduced customers in the long-term. Managers can stop unethical accounting practices by making sure that there is oversight and checks and balances in place. Consistent oversight can deter unethical accounting practices. But a major factor in stopping unethical accounting behavior is to create a corporate culture that does not allow for this form of practice. In many instances of unethical behavior, the problem stems from ‘bottom line’ thinking. The ends justifying the means type of thinking leads many executives to seek profits in the face of great risk to investors. For this reason a more conservative approach should be taken when conducting business.

References

‘‘Corporate and Criminal Fraud Accountability Act of 2002’’. TITLE VIII CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY SEC. 801. SHORT TITLE.

Kimmel, P. D., Kieso, D. E., & Weygandt, J. J. (2012). Financial accounting: Tools for business decision making. Hoboken, NJ: John Wiley & Sons.

~Citation~

Vincent Triola. Thu, Mar 18, 2021. What accounting issues did the Sarbanes-Oxley Act of 2002 address? Retrieved from https://vincenttriola.com/blogs/ten-years-of-academic-writing/what-accounting-issues-did-the-sarbanes-oxley-act-of-2002-address

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