What is Sarbanes Oxley and its impact on top executives.

THE SARBANES-OXLEY ACT and ITS IMPACT ON TOP EXECUTIVES

Introduction

According to the Sarbanes-Oxley Center , Without a doubt , the Sarbanes-Oxley Act is the single most important piece of legislation affecting corporate governance , financial disclosure and the practice of public accounting since the US securities laws of the early 1930s (Sarbanes-Oxley Center : The Act and Strategies for Compliance . The Sarbanes-Oxley Act of 2002 , otherwise known as the Public Company Accounting Reform and Investor Protection Act , was signed into law on July 30 , 2002 , in to protect investors through enhanced accuracy and reliability

of company disclosures of publicly traded companies . The law , which was named after its principal sponsors , Senator Paul Sarbanes and Representative Michael G . Oxley , came into being as a result of several financial scandals that involved public companies such as Enron and WorldCom , and the accounting services firm Arthur Andersen . The law includes provisions covering stricter guidelines for enhanced financial reporting and auditing , and also enforces harsher penalties for company officials , auditors , lawyers , and stock analysts found guilty of fraudulent activities . The Act mandated the creation of the Public Company Accounting Oversight Board (PCAOB ) to supervise the professional services of auditing firms . In general , the legislation is intended to revive investor confidence in the capital markets in the United States and to prevent financial reporting scandals and other fraudulent securities transactions that have happened become over the past several years (Kaplan , C . 2002

Events prior to enactment

Prior to the enactment of the Sarbanes-Oxley Act , there were quite a number of financial reporting scandals that occurred among public companies . One of the most recent and most scandalous was the case of Enron Corp , an energy trading and communications company , whose officials were found to have committed fraudulent acts through falsified financial statements . Former Chairman and Chief Executive Kenneth L Lay , who faced civil charges d by the Securities and Exchange Commission in 2004 , was said to have earned unlawful proceeds of more than 90 million in 2001 (U .S . Securities and Exchange Commission . Lay made investors believe that the company was doing well and hid losses from one business segment through a reorganization scheme . Class action lawsuits have also been d against the company by enraged investors who lost money believing that the positive outlook delivered by its former CEO was true . Implicated here was Enron 's former auditing firm Arthur Andersen , for participating in the fraudulent activities and destroying documents as an investigation neared . The scandal caused the bankruptcy of the company and losses in investment money among public investors (U .S . Securities and Exchange Commission

Several other cases of falsified financial statements and securities fraud have occurred over the recent years , including the WorldCom accounting scandal , which led to the bankruptcy of the telecommunications company . The cases of WorldCom and Enron are just some of the biggest reported scandals , but over the years , the U .S stock market has been filled with numerous cases of so-called insider trading activities , all to the disadvantage of the investing...