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The Sarbanes-Oxley Act Creates Ethics in Accounting

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The Sarbanes-Oxley Act Creates Ethics in Accounting

While contemplating the question of has the Sarbanes-Oxley Act (SOX) made a difference in ethical behavior; the question came to mind; has any law ever succeeded in legislating ethical behavior? The short answer is no, but SOX has lessened the chance of unethical behavior going un-detected.
In 2006 top executives at over 150 companies took advantage of lenient reporting policies; where they chose the lowest stock price during a previous quarter, then cashed out at a higher price thereby increasing their profits (Sweeney, 2012). These individuals were caught and this behavior will continue to be detected due to the implementation of SOX.
With the passage of SOX and under section 403, which requires executives to notify the U.S. Securities and Exchange Commission (SEC) “of buying or selling stock, including stock options” unethical behavior is lessoning (Sweeney, 2012, para 4). It was determined that the behavior took place before 2002 and it is likely that had SOX not been enacted this behavior would have continued. Paul Regan a forensic accountant stated; “there’s still plenty of fraud. But if we didn’t have Sarbanes-Oxley, the misstatements would be significantly worse” (Sweeney, 2012, para 9). Most experts agree and say that SOX is the most sweeping regulation since the passing of the Secrities Exchange Act of 1934. I would agree with this statement. The unethical behavior of these individuals cost millions of dollars and jobs for American investors. One of the major objectives of SOX was to end self regulation.
One objective of SOX of major importance was to create greater auditor independence. It went as far as limiting the auditing services provided to customers. For instance an auditing firm cannot provide more than one service to the same customer. Prior to the enactment of SOX the auditors regulated themselves, creating an environment ripe for unethical behavior. SOX has improved how companies are governed in respect to financial reporting. SOX compels those with proof regarding fraudulent behavior to report it. It set forth protection for whistleblowers and requires businesses to inact internal codes of conduct and controls for financial officers.
Investors took significant losses because of unethical situations like WorldCom and Enron. Though no law can legislate ethical behavior, the Sarbanes-Oxley Act is a beginning to providing oversite of publicly traded companies and recovering investor confidence.

References

Sweeney, P. (2012, July/August). Sarbanes-Oxley: A Decade Later. Financial Executive, 28(6), 38-41. Retrieved December 11, 2014, from http://search.proquest.com.ezproxy.apollolibrary.com/docview/1030135935?accountid=458…...

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