Sarbanes-Oxley Act of 2002: Are Multi-National Corporations Unduly Burdened?

The Sarbanes-Oxley Act was enacted by Congress in response to the frauds perpetrated by several large U.S. companies; Enron and WorldCom were the main catalysts for the swift regulatory response. Though the primary impetus of Sarbanes-Oxley was to deter corruption domestically, its impact has had multinational reach. Problems arise when foreign corporations domiciled outside the United States are subject to both U.S. securities law and the laws of their home country, particularly when the laws are in conflict. This five part comment examines the effect that the Sarbanes–Oxley Act of 2002 has had on multinational corporations. The comment begins by providing the background of the Act noting the circumstances that brought about its enactment. Part two outlines the sections of the Act that have a direct regulatory impact on multinational corporations registered on a United States exchange and the necessary steps that the effected corporations have taken in order to manage the regulations imposed by the Act. Some sections of the Act regulate multinational corporations specifically, while other sections indirectly affect multinational corporations. Part three of the comment analyzes the interaction of Sarbanes-Oxley with international corporate governance rules and regulations, giving particular attention to the European Union, specifically France and Germany. It examines which regulations have been more successful and the reasons for that success. The comment finds the best place to view the success of Sarbanes-Oxley is the decision of a multinational corporation to cross-list on a United States exchange. The success of the Act can also be seen by looking at the effect Sarbanes-Oxley has had on other countries’ corporate governance regulations. In part four, the comment looks at the extraterritorial applicability of United States law and how it affects the enforcement of the regulations mandated by the Sarbanes-Oxley Act on multinational corporations. It examines the history of extraterritorial power of federal legislation on activities occurring outside the United States, but having an impact domestically. The comment concludes by looking at what the Sarbanes-Oxley Act will mean for the future of corporate activity both inside and outside of the United States. It also emphasizes that legislation alone will not be enough to deter corruption, but until all corporations can effectively police themselves, there will always be the taint of corruption looming on the horizon

Law and stock markets: evidence from an emerging market

A sweeping and protracted reform of corporate law took place in Finland in the 1970s. The reform brought significant improvements to investor protection and, similar to the US Sarbanes-Oxley Act, tightened disclosure rules at the cost of increasing the work load in corporate reporting. We find that the Finnish stock market generally reacts negatively to news of tightened disclosure rules and increased work loads, whereas news of delays in implementation of reform were largely positive. This raises the question of whether strengthening investor protection by requiring greater transparency necessarily promotes the development of financial markets. It also serves to remind that the implementation costs of reforms should not be overlooked.corporate governance; investor protection; law and finance; transparency; Sarbanes-Oxley Act

Sarbanes-Oxley: A compliance case study

Sarbanes-Oxley is a piece of legislation passed into law on July 30, 2002 (The Sarbanes Oxley Act of 2002 With Analysis, 2002, p. iii). The act was developed to, .. . to enhance public company governance, responsibility, and disclosure (p. l). The official name of the act is Public Company Accounting Reform and Investor Protection Act. The name Sarbanes-Oxley comes from the act\u27s co-sponsors: Senator Paul Sarbanes, D-Maryland and Senator Michael Oxley, R-Ohio. (Callaghan, 2004) The legislation adds requirements for publicly held corporations, not private companies, in the United States regarding internal controls and financial reporting. Sarbanes-Oxley, nicknamed SOX, alters the accounting profession for all areas of accounting. It primarily affects the public accounting firms because there are stricter rules about their independence and new audit programs are required. The accountants who prepare the financial statements within the publicly held corporations are held to higher standards for financial reporting. The CEOs and CFOs of the publicly held corporations are required to certify financial statements and internal controls which, in tum, creates more liability for them, including possible criminal penalties. Additionally, the audit committees of publicly held corporations have experienced new roles within their respective corporations. (How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession, 2003) These aspects and others of SOX will more be explained more in depth with focus on sections 302 and 404 of the act, followed by a case study of compliance with SOX

Irresistible Forces and Political Obstacles: Securities Litigation Reform and the Structural Regulation of Corporate Governance

Congress passed the Sarbanes-Oxley Act of 2002 in reaction to the enormous political pressures generated by the wave of corporate financial scandals during 2001-2002. The Act\u27s innovative reforms of corporate governance law were shaped by powerful political constraints on the use of private litigation and tensions over the use of structural regulation to alter the internal governance structures and procedures of publicly traded corporations. The conservative political realignment during 1990s precluded the development or expansion of litigious enforcement mechanisms (i.e., private causes of action) to curb corporate and managerial financial misconduct. Consequently, a number of the Sarbanes-Oxley Act\u27s core provisions took the form of structural regulation intended to function as non-litigious, self-executing mechanisms of regulation. Political constraints on the use of private litigation as an enforcement mechanism entailed a more direct intervention of state power within the corporation and blurred the established boundaries between the public and private spheres. However, the legislative reforms did not alter the core processes of corporate managerial power - the nomination and election of directors to the board. When the SEC attempted to do so, it threatened encroachment on the private sphere and the institutional bases of managerial power and autonomy and produced a backlash by business elites against further reforms and against the underlying logic of Sarbanes-Oxley itself

Sarbanes Oxley Act (SOX) Disclosure, Internal Control Disclosure as an Important Part in Corporate Governance (CG)

The Sarbanes–Oxley Act of 2002 (Pub.L. 107–204, 116 Stat. 745, enacted July 30, 2002), also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability, Responsibility, and Transparency Act" (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law that set new or expanded requirements for all U.S. public company boards, management and public accounting firms. There are also a number of provisions of the Act that also apply to privately held companies, for example the willful destruction of evidence to impede a Federal investigation. The bill, which contains eleven sections, was enacted as a reaction to a number of major corporate and accounting scandals, including Enron and WorldCom. The sections of the bill cover responsibilities of a public corporation’s board of directors, adds criminal penalties for certain misconduct, and required the Securities and Exchange Commission to create regulations to define how public corporations are to comply with the law.After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act was enacted in July 2002 to restore investors' confidence in markets and close loopholes for public companies to defraud investors. The act had a profound effect on corporate governance in the United States. The Sarbanes-Oxley Act requires public companies to strengthen audit committees, perform internal controls tests, set personal liability of directors and officers for accuracy of financial statements, and strengthen disclosure. The Sarbanes-Oxley Act also establishes stricter criminal penalties for securities fraud and changes how public accounting firms operate their businesses. Internal control is a process conducted by the company’s board of management, the management, and other personal designed (1) to give certainty about the effectiveness and efficiency of the company’s operation, (2) the reliability of financial statements, and (3) the obedience towards the law and regulations (Ghosh & Lubber ink, 2006).The internal control is also needed in generating the financial report so that it reflects the company’s real operation. The assurance of the effectiveness of the company’s internal control is an obligation for the company which stock is traded at the capital market. An effective internal control system will benefit the company, especially to attract the market. (Shaun & Weiss, 2009). This is a theoretical study based on SOX disclosure and the effect of internal controls on executive compensation according to the theoretical standards as an important part of corporate governance (CG). Keywords: The internal control disclosure, financial report, executive compensation, timeliness, corporate governance, control system, the responsibility, risk management, evaluate the effectiveness

Corporate Governance And Firm Characteristics (The Sarbanes-Oxley Act Of 2002)

With the current attention focused on the Sarbanes-Oxley Act of 2002, it is timely to investigate the characteristics of firms that are early in implementing corporate governance policies pursuant to the Act.  Since a relationship between corporate citizenship and financial success has been established in prior research, it is of interest to further probe these associations.  The purpose of this particular study is to examine some characteristics of firms that were early in adopting corporate governance policies in response to the Act

The Impact of the Sarbanes-Oxley Act on IT Project Management: A Case Study

In 2002, the Sarbanes-Oxley Act was passed into law requiring all U.S. based, publicly traded companies to report on the status of their internal controls governing the reporting of financial information. Because of the close relationship between financial reporting and IT, the requirements of the Sarbanes-Oxley (SOX) Act has also greatly impacted IT Governance and the way IT projects are managed. This study is investigating the impact of SOX on IT Project Management within a large corporation. The study is evaluating three areas of impact: 1) The introduction and formalization of internal controls as defined by the COBIT framework, 2) The positive and negative effects on IT project implementation, and 3) The additional costs to an IT project to maintain compliance to the SOX requirement. In addition, the study also considers if the introduction of internal controls has impacted the organization’s development maturity when evaluated against standard maturity models

The Sarbanes-Oxley Act of 2002 And its Effects on American Business

In the wake of the 2001-2002 Arthur Andersen accounting scandal and collapse of Enron and WorldCom, the government, the investors and the American public demanded corporate reforms to prevent similar future occurrences. Viewed to be largely a result of failed or poor governance, insufficient disclosure practices, and a lack of satisfactory internal controls, in 2002 Congress passed the Sarbanes-Oxley Act seeking to set standards and guarantee the accuracy of financial reports. The Sarbanes-Oxley Act (known as SARBOX or SOX) sought to address these concerns through making executives responsible for company accounting statements, redefining the relationships between corporations and their auditors, and restructuring the internal audit systems of public corporations. Since the implementation of the law, SOX has redefined the corporate accounting world. It is widely viewed to be the most important piece of corporate governance and disclosure legislation since the Securities Act of 1933 and Securities Exchange Act of 1934. This paper first outlines the provisions of the SOX Act, analyze its implications for firms and investors, and then address some of the key external effects of the implementation of and compliance with the SOX Act

The Summarized Evaluation of The US and Latin America Corporate Governance Standards After Financial Crisis, Corporate Scandals and Manipulation

There are many analytical papers and researches done in the field of examining and analyzing consequences of the Sarbanes Oxley Act (2002) and some done in the corporate governance in some Latin American countries. This paper chooses a different approach. First, it selects The US, Brazil and Chile, which represents for Latin American countries, as three (3) American countries to analyze their best suitable policies and corporate governance practices, in consideration of factors after crisis and scandals. Second, it aims to build a selected comparative set of standards for corporate governance system in the US and representative Latin American countries. Last but not least, this paper illustrates corporate governance standards that it might give proper recommendations to relevant governments and institutions in re-evaluating their current ones.corporate governance standards, board structure, code of best practice, financial crisis, corporate scandals, market manipulation, internal audit