Critical and Unnecessary Provisions of the Sarbanes-Oxley Act of 2002

Financial and Managerial Accounting
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Financial and Managerial Accounting
The federal government introduced the Sarbanes-Oxley Act in 2002, which established auditing and financial regulations to be used by public companies. The accounting scandals at Enron Corporation, WorldCom, and Tyco International significantly contributed to the formation of the law. Lawmakers implemented the legislation to safeguard employees and shareholders from fraudulent financial practices. The Sarbanes-Oxley Act made corporate officers, accountants, and auditors accountable for malpractices in financial reporting (Kim, 2016). Indeed, it was enforced by the Securities and Exchange Act (SEC). The primary areas that the act touches are corporate responsibility, accounting regulation, financial protection, and criminal punishment. Consequently, Sarbanes-Oxley Act regulates internal audits, financial reporting, and control business practices in publicly traded firms, non-profit, and private organizations.
Kenneth Lay founded Enron Corporation in 1985. The energy company had a renowned reputation, and it was among the most innovative and successful firms in the United States of America (USA). However, Enron Corporation filed for bankruptcy in 2001, which made shareholders lose about $74 billion and employees lost billions (Connell, 2017). The company had engaged in fraudulent financial practices, such as fixing the selling prices of its shares to attract investors. Similarly, WorldCom collapsed in 2006 due to fraudulent accounting practices after filing for bankruptcy. Nevertheless, SEC fined the company around $750 million, and its chief executive officer got sentenced in prison for 25 years. Furthermore, Tyco International was involved in an accounting scandal that contributed to its collapse in 2016.
The Sarbanes-Oxley Act provisions that made the most significant impact are sections 302 and 404. Section 302 requires financial statements and reports to be reviewed and signed by financial officers before they are passed to internal controls (Coates, 2007). The financial documents should ...