1. Event history of the Sarbanes-Oxley Act of 2002
According to Bumiller, (2002), the Enron saga, which occurred in early 2002, set the stage for several things, which resulted in the SOX legislative process that did little to resolve the uncertainty on the enactment of the legislative reform or what will be the provision of the legislation. The events are categorised into three groups:
A) Early events that resolved little uncertainty about SOX
B) Events that resolved virtually all uncertainty that reform legislation would be enacted but did not resolve uncertainty about the final provisions of the Act
C) Events that resolved uncertainty about the Act’s provisions or were informative about its enforcement
A. Event: Early Period
Harvey Pitt, the S.E.C. Chairman called for the building of a new body which regulates public accounting, and would be superior to the accounting industry
Michael Oxley, the Chair of the House Financial Services Committee, brought a House of Representatives bill H.R.3763,the “Corporate and Auditing Accountability, Responsibility and Transparency Act of 2002” after a few weeks.
President Bush unveiled a plan to improve corporate disclosure , auditor and CEO responsibility for doing financial reports
Christopher Dodd, a Senator brought a senate bill S.2004, which was intended to improve financial reporting through engaging an independent oversight board for auditors, providing more resources for the S.E.C and well enhanced accounting standard setting process.
A suggestion was made by the Financial Services Committee report on H.R. 3763, to improve the reliability and accuracy of financial disclosure made in respect to securities law. The House passed the bill on April 24th by a majority of 334 to 90 votes.
The Senate Judiciary Committee affirmed proposed legislation creating felony charges for securities fraud, mishandling or shredding documents .No action was taken by the Senate in respect of the reform proposal that had been brought before the House and passed
B. Event: Resolving Uncertainty about Passage of Accounting Reform Legislation
Paul Sarbanes ,a Senator and Chair of the Senate Banking Committee, hinted at a consensus proposal for changing accounting practices was in progress
On June 15th, a jury convicted Arthur Andersen of obstructing the S.E.C.’s Enron investigation.34
The jury convicted Arthur Andersen on 15th June for obstructing the S.E.C from
A legislation was approved on 18th June through the Senate Banking Committee vote of 17 to 4 votes, thus creating an accounting oversight board which is mandated to discipline wayward auditors
The bill S.2673 by Senator Sarbanes in the senate in June 25th
Massive fraud $ 3.8 billion at WorldCom were disclosed
WorldCom faced a lawsuit filed by S.E.C alleging a fraudulent scheme to overstate earning
A report was issued by Senate Banking Committee on Sarbanes bill on July 3rd, while the S.E.C affirmed a requirement that required all CEOs and CFOs to certify companies financial reports were, the two events occurred concurrently (Kohn, & Cola pinto, 2004).
On July 8th the Senate began debating S.2673 which went on for until 15th July
On July 9th, President Bush spoke on Wall Street in support of securities law reform.
On July 15th, the bill S.2673 was unanimously passed through a vote of 97 to Zero by the Senate.
Concurrently, the “Corporate Fraud Accountability Act of 2002” H.R. 5116, was brought to the floor of the House. The top executives of firms were required to certify the financial statements or face criminal penalties arising from misrepresentation of financial reports
The House, which was, controlled the House on July 16th passed H.R. 5118 on 391 to 28 votes.
The same July 16th President Bush ordered that a final bill be passed before the house break for recess in august.
C. Event: Events Resolving Uncertainty about Specific Provisions and Enforcement of
Accounting Reform Legislation
On July 19th an executive session held between Houses –Senate Conference Committee, constituted to reconcile House and Senate bills.
On July 24th, the Conference Committee issued a report .The Sarbanes –Oxley Act of 2002 as known as Conferences Committee’s bill, which reflected reforms included in the Sarbanes bill went through some changes.
The changes made incorporated tougher punishment to executives and gave S.E.C more control of the new Public Company Accounting Oversight Board.
On July 25th, the Conference Committee’s bill was overwhelmingly passed at the Senate by 423 to 3 votes in the House and 99 to 0 votes in the Senate.
On July 29th ,the S.E.C announced that it would post names of CEOs and CFOs on its website for non-compliance
On July 30th, the president assented to the bill.
On August 14th, was the deadline for compliance by the CEO and CFO of large companies to certify their company’s financial statements with the S.E.C.?
2) Briefly explain the three responsibilities of the SEC and three components of SOX.
(a)Responsibilities of S.E.C
In charge of the inspection of brokers, securities firms and investment advisers
Supervise private regulatory organisation in the accounting, auditing and securities fields.
Liaise with the state, federal and foreign authorities to coordinate the U.S security regulations
(b) Components of SOX
Formalizing and reinforcing subjective checks and balances within companies
Introducing levels of governance and sign-off to guarantee that financial reporting exerts full declaration
Ensure the Corporate governance fully adhered to with full transparency.
3) Do you feel these were adequate solutions to the situations at the time of their implementation?
Yes, the actions were adequate response to the problem at hand at that time.
Bumiller, E, (2002). “Bush Signs Bill Aimed at Fraud in Corporations”. The New York Times.
Kohn M., & K. Cola pinto, (2004). Whistleblower Law: A Guide to Legal Protections for Corporate Employees. Praeger Publisher