The Sarbanes-Oxley Act (SOX) of 2002 has helped to improve things on a superficial level, with more legal barriers to white collar crime in place, yet it still lacks the number of staff members required on behalf of the SEC to really regulate the new laws put into place. The Sarbanes-Oxley Act has made a difference in the ethical behavior of companies regarding their financial accounting in spite of being undermanned though, because it stops smaller white collar crimes and unethical behavior from happening in the form of a deterrence (Achen, & Snidal, 1989).
The SOX has now required publically traded companies to include a statement of the responsibilities of the management for establishing and maintain control structure and procedures internally, an assessment of the management at the end of each fiscal year regarding their effectiveness for handling the internal control structure of the company, and an outside auditor’s report on the management’s effectiveness of controlling internal controls and procedures, inside of their annual financial reporting.
The SEC has established a new Public Company Accounting Oversight Board who will investigate and audit all public companies. The board is made up of CPA’s and they are tasked with regularly inspecting the operations of the accounting firm, and they are responsible for investigating potential violations of conduct, competency, standards, or securities laws. They can revoke the accounting firm’s registration, suspend the registration, and impose civil penalties (The Sarbanes-Oxley Act, 2002).
Internal controls have tightened the accountability standards for auditors, officers, and directors. The internal controls now have new auditing requirements whereby auditors have the test the scope of the internal controls for a company and present the findings annually. They have to evaluate whether the internal controls are providing a system of maintaining records which accurately reflect the transactions of the company. Additionally, CEO’s and CFO’s have to certify in their reports to a number of internal controls. They have to certify that they disclosed any weaknesses in internal control and any deficiencies in internal controls to the board of directors and audit committee (SEC, 2004).