Expert Answer:Research and analyze any public policy or federal

  

Solved by verified expert:I added two documents, the first one is important! It explains exactly how I am supposed to structure the paper and it is the check list. The second document is from an old paper that a friend did which you can use as a reference for the format. It HAS to have 12 pages minimum of actual content writing (double space) – so all of the filler pages such as the title pages and table of contents I can add myself at the end. I will need it back as a word document please. The capstone project in the course is an individual research assignment on a public
policy/federal law of your choice. We will call this project your Policy Paper which will
be a formal research paper aimed at introducing and/or polishing your skills in the
following:
 Public policy research – policy design, implementation, evaluation
 Understanding a federal law
 Effectively exploring and utilizing the library system for research
 Strengthening your academic and competitive writing skills
 Enhance your critical thinking skillsAdditionally, your Policy Analysis will be required to have a minimum of 10 quality
references (academic journal articles, leading books, relevant websites, etc.). The paper
will be a 12-15 page narrative/report with a traditional title page, appropriate subheadings,
standard formatting (double-spaced, 12-point font, Times New Roman, page numbers),
parenthetical citations such as (Jasso, 2018, p. 35), a works cited page (you may call it a
reference page), and any necessary appendices. We will use APA format for the
bibliography.
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Sarbanes-Oxley Act of 2002: Final Policy
Paper
Abigail Vargas
Ethics & Law in Business and Society
Dr. Sean D. Jasso
Ken Weigel
Section :026
University of California, Riverside
December 12, 2018
Table of Contents
Introduction ………………………………………………………………………………………………………………………………… 1
Part One: The Problem…………………………………………………………………………………………………………………. 2
History of the Act: Responding to Market Failure………………………………………………………………………… 2
Part Two: Implementations …………………………………………………………………………………………………………… 7
The Passage of Bill to Law ……………………………………………………………………………………………………….. 7
Agency & Code ……………………………………………………………………………………………………………………….. 9
Summarization of the Policy’s Requirements …………………………………………………………………………….. 11
Part Three: Impact on Business and Society ………………………………………………………………………………….. 12
Creating Additional Expense …………………………………………………………………………………………………… 12
Protecting the Public ……………………………………………………………………………………………………………… 14
Part Four: Policy Analysis ………………………………………………………………………………………………………….. 14
Success of SOX………………………………………………………………………………………………………………………. 14
Areas for Improvement …………………………………………………………………………………………………………… 15
Recommendations for Future Policy Makers……………………………………………………………………………… 16
Appendix ………………………………………………………………………………………………………………………………….. 17
Works Cited ……………………………………………………………………………………………………………………………… 19
Introduction
On the day of the signing of Sarbanes-Oxley Act of 2002, George W. Bush said, ‘‘Today,
I sign the most far-reaching reforms of American business practices since the time of Franklin
Delano Roosevelt. This new law sends very clear messages that all concerned must heed. This
law says to every dishonest corporate leader: you will be exposed and punished; the era of low
standards and false profits is over; no boardroom in America is above or beyond the law.’’ The
Act was a response to numerous accounts of massive corporate fraud that occurred throughout the
late 1990s and early 2000s. In most of these cases, the executives of the companies were able to
save most of their money, while employees, investors, and shareholders suffered the losses. The
public trust in corporations, and the American financial system as a whole, began to erode, so
Congress sought a way to fix this problem. Their solution was the Sarbanes-Oxley Act.
The law is enforced by the combination of multiple federal and nonfederal agencies, such
as the Securities and Exchange Commission, the Financial Accounting Standards Board, the
American Institute of Certified Public Accountants, and most importantly the Public Company
Accounting Oversight Board. The purpose of the law is to restore the public’s trust in the financial
procedures used by corporations. This paper will provide an in depth analysis answering the
following questions: Why was the Sarbanes-Oxley law created? How is it implemented in the
United States? What effect has this law had on businesses and society? How has the law been
successful and in what areas could it be improved? Lastly, I will conclude with suggestions for
future policy makers in regards to what they should think of when creating new policies and when
they should act.
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Part One: The Problem
History of the Act: Responding to Market Failure
In the United States, it is common knowledge among people in business that bad corporate
behavior led to the creation of the Sarbanes-Oxley Act of 2002. In the early 2000s, a series of
corporate scandals, such as Enron and WorldCom, took the nation by surprise. The following
table was taken from an article in The Journal of Criminal Law and Criminology titled, “In Enron’s
Wake: Corporate Executives on Trial,” by Kathleen F. Brickey. It displays a series of major
corporate fraud prosecutions that occurred from March 2002 to January 2006. The table gives a
brief description of the number of trails and defendants for each company. However, as Brickey
points out in her article, it does not “convey the full scope of government charging practices
because it does not include co-defendants who bargained with prosecutors and did not go to trial”
(Brickey, 2006, p. 401-402); it also does not include retrials following mistrials.
Company
Number of
Casers Tried
Number of
Defendants Tried
Adelphia
1
4
Cendant
1
2
CSFB
1
1
Duke Energy
1
2
Dynegy
1
1
Enron
4
14
HealthSouth
3
4
ImClone
2
3
Impath
1
1
Mckesson HBOC
1
1
NewCom
1
1
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Continuation of Table:
Company
Number of
Casers Tried
Number of
Defendants Tried
Ogilvy & Mather
1
2
Qwest
1
4
Rite Aid
1
1
Tyco
1
2
Westar Energy
1
2
WorldCom
1
1
Although some of the trials may have occurred after the creation of the Sarbanes-Oxley
Act of 2002, this table still provides concrete evidence that during the early 2000s there was a
market failure occurring. Many corporations’ chose to focus primarily on self-interest and
profitability; this attitude is clearly exemplified by the behavior of corporate executives from
Enron, WorldCom, Tyco, etc., and led to negative (sometimes even catastrophic) outcomes that
affected thousands of people across the nation. Sarbanes-Oxley was the Federal law created by
Congress in response to this evident market failure. “Market failure is described as the pursuit of
private interest (such as a stakeholder of a corporation) that does not lead to an efficient use of
society’s resources (exemplified use of investor funds for illegal corporate and executive gain)”
(Jasso, 2009, p. 5). After a thorough analysis of the rise and fall of Enron, it becomes evident how
factors such as market failure, information asymmetry, and corporate greed created the necessity
for governmental intervention.
In the specific case of the Enron scandal, many experts tend to place the blame on Andy
Fastow, the then CFO of Enron. They see him as the main culprit guilty of deceiving the public
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by cooking Enron’s books and use his name as the main reference to the corporate scandal, even
going so far as to refer to the events leading to the collapse of Enron as “ the Enron-Anderson
saga” (Brickey, 2003, p.358). Fastow created a system that allowed for the firm’s financial
statements to look as if the company was more profitable than it actually was by concealing the
company’s liability and losses. He did this through the use of Special Purpose Entities. Special
Purpose Entities were essentially offshore accounts that would obscure all of Enron’s debt. In the
trial, United States V. Fastow (CR-H-02-0665), Anderson was charged with multiple accounts of
fraudulent actions including wire and securities fraud, two counts of conspiracy, and obstruction
of justice (www.justice.gov). Although he played a major role in the grand scheme of things, it
does not seem to me that Fastow was the only one to blame. It looks like Andy Fastow was the
scapegoat used by other corporate executives who were trying to distance themselves from the
criminal actions of the company.
The history of Enron demonstrates how the development of its success was predominantly
based on the trust employees, investors, and other members in the community had in the
corporation. Enron was founded in 1985 by two entrepreneurs, Jeffrey Skilling and Kenneth Lay.
The company would go on to rise from its humble beginnings to become the seventh most powerful
corporation in the United States. As explained in the film, Enron: The Smartest Guys in the Room,
the corporation was awarded “America’s Most Innovative Company” for six consecutive years by
Fortunes magazine. People believed that Enron’s executives had created an ethical firm that was
projected to be prosperous and long-lasting. “The Fragility of Organizational Trust: Lesson from
the Rise and Fall of Enron”, an article by Steven C. Currall and Marc J. Epstein, discusses how the
management team in Enron created a “vision [that] resonated with both the energy industry and
those on Wall Street who longed for increased productivity and profitability in an industry that
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was in a rut” (2003, p.198). Because of all the propaganda used by the company, investors and
the public believed that the value in Enron’s stock would continue to increase without end. The
faith and confidence people had in Enron created an illusion of a thriving corporation – one which
the public whole-heartedly believed was in a secure financial sate. Unfortunately, many did not
understand the process through which the company continuously generated “profits”. While
ostensibly Enron projected an image of wealth and prosperity, the reality was that the firm’s
success was built on top of quicksand; the executives took advantage of the public’s trust for their
own personal gain.
The root of corruption found in Enron can be traced back to the early years of its creation.
In January 1987, it became evident that two oil traders in Enron’s New York office were
transferring company profits to their personal accounts. The traders, Louis Borget and Tom
Mastroeni, made gambles based on the price changes in Enron’s oil. The company’s Board of
Directors were informed about their mischievous actions and demanded the men to report to their
corporate office located in Huston. When they arrived to the corporation’s headquarters, Borget
and Mastroeni presented tampered financial statements to the Board.
Although the Board
members eventually discovered this, they did not terminate, or even simply reprimand, Borget or
Mastroeni; instead, Kenneth Lay encouraged them to gamble more. According to Enron: The
Smartest Guys in the Room, he sent them a message saying, “Keep making us millions.”
His
gamble did not pay off, however. Giving Borget and Mastroeni free reign caused the company to
lose millions of dollars. Things got so bad that the firm almost had to file bankruptcy. This desire
to increase profitability by any means necessary (even illegal ones) continued to grow as a part of
the culture within Enron. Kenneth Lay and Jeffrey Skilling were the main culprits involved in
creating an environment where taking illegal actions to increase profit maximization became
-(5)-
acceptable, and even encouraged; the process by which profits were generated did not matter to
them. For example, at one point, employees started to regulate the energy supply, causing
blackouts in designated states, in order to increase its demand. Based on a simple supply and
demand curve, it is evident how the price of a product will automatically increase by reducing its
supply and causing the demand for it to increase as a result. In addition to that, with the stamp of
approval from the executives, whenever the company took part in projects that generated losses,
Andy Fastow was in charge of manipulating the books. When it became evident that Enron’s
façade would eventually collapse, the beneficiaries of all the turmoil were the executives of the
firm. They walked away with millions of dollars, while many of their employees lost their jobs
and all of their retirement funds, much of which were held as shares in the corporation’s stock.
When top management commits fraud, the consequences can be catastrophic to the
community in which it operates. The following statistical information was taken from Dr. Sean
Jasso’s article, “Sarbanes-Oxley – Context & Theory: Market Failure, Information Asymmetry &
The Case For Regulation.” These statistics provide additional evidence of the market failure that
occurred during the early 2000s.
Bankruptcy facts:
20,000 employees lost their jobs and health care
Average Severance pay $4,500
Top executives were paid bonuses totaling $55M
In 2001:
Employees lost $1.2B in retirement funds
Retirees lost $2B in retirement funds
Enron top executives cashed in $166M in stock
In 2001, Enron became one of the United States’ largest cases of corporate bankruptcy and
fraud. The negative effects of the firm caused people to lose confidence in the credibility of auditor
practices in the United States and the nation’s capitalist market. What infuriated most members
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in society was the fact that the executives who deceived them walked away with a large amounts
of money. In a video recording of the trail, Senator John McCain said, “Enron has drawn an
enormous level of public and congressional interest because the story of how this one company
challenges fundamental analysis about our economic system.” ( Enron Financial Collapse, 4:30).
The Enron scandal sparked massive public doubt as to whether or not contemporary accounting
practices (such as reporting disclosures) were sufficient to keep investors and shareholders
informed of the financial status of corporations. Because of the evident market failure, the
government instituted the Sarbanes-Oxley Act of 2002, with hopes of restoring the public’s trust
in the nation’s economic system.
Part Two: Implementations
The Passage of Bill to Law
The Sarbanes-Oxley Act of 2002 was created through a “bipartisan effort of the U.S. Senate
and House of Representatives” (Jasso, 2009, pg. 8). The law was essentially formed through the
merger of reformed bills presented by Senator Paul Sarbanes and Representative Michael Oxley.
Each men belonged to a different political party; Paul Sarbanes was a Democrat from the state of
Maryland, and Michael Oxley was a Republican from the state of Ohio (Hochberg, Sapienza, &
Vissing-Jorgensen, 2009, p.526). Because the government saw that urgent need to restore the
public’s confidence in the integrity of the economic markets in the United States, the bill took less
then a year to become a law.
Representative Michael Oxley’s original bill, the Corporate and Auditing Accountability,
Responsibility, and Transparency Act of 2002 (CAARTA), was first presented to the Committee
on Financial Services in the House of Representative on February 14, 2002. On the March 13 and
-(7)-
20 of the same year, the committee held legislative hearings. By April 24, 2002, the bill was
passed by the House of Representatives, with a recorded vote of 334-90 (Roll no.110, http://
congress.gov). Within the congressional report submitted by Mr. Oxley (H. Rept. 107-414), there
is a section called “Minority Views,” written by John J. LaFalce, Paul E. Kanjorski, Bernard
Sanders, and Janice D. Schakowsky. In this section of the report, the representatives explained
their concerns about the bill and mentioned the different areas that they felt should be strengthened.
One of the areas they suggested for improvement was related to the role of the audit committee.
They discussed how the bill “does not in any meaningful way address to whom the outsider
auditors report” (H. Rept. 107- 414, 49). They recommended for Congress to include a provision
that would require the auditors to report to the audit committee of the Board of Directors and for
that committee to continuously oversee the auditing practices and internal controls of the company.
Within that same time frame, Senator Sarbanes, from the Seante Committee on Banking,
Housing, and Urban Affairs, created his own proposal called The Public Company Accounting
Reform and Investor Protection Act of 2002 (S. 2673). On April 25, 2002, the Senate received
H.R. 3763 (Oxley’s bill). As mentioned in the article, “Corporate Fraud and Responsibility: A
Legislative History of the Sarbanes-Oxley Act of 2002,” written by William H. Manz, the Senate
struck all of the House bill after the enacting clause and substituted the language of the bill with
S.2673 (9). Subsequently after the various amendments were passed, on July 15, 2002, the Senate
requested a conference with the House of Representatives. Both the House and the Senate worked
together to reconcile their differences in opinion, creating a stronger bill. With the unification of
the bill, it was renamed the Sarbanes-Oxley Act of 2002. On July 25, 2005, the House agreed to
the conference report with a vote of 423-3 (Roll no.348), and the Senate agreed to the conference
report with a roll call vote of 99-0 (http://congress.gov).
-(8)-
Agency & Code
On July 30, 2002, during the second session of the 107th congress, President George W.
Bush signed the Sarbanes-Oxley bill, transforming it into Public Law No. 107-204. In the U.S.
Code, the law is codified under 15 USC Title 15 – “Commerce and Trade,” Ch. 98: Public
Company Accounting Reform and Corporate Responsibility, Sec. 7201 (http://uscode.house.gov).
Within the United States’ system of government, laws are put into effect and implanted by
the Executive Branch. Once the president signs a bill into law, they can select the agency
responsible for implementing the law. The selected federal agency can then issue administrative
regulations explaining how it intends to put the law into effect, what citizens must do to comply
with the law, and how they will be held accountable. For an analysis of the law’s implementation,
“the policy process requires looking at an intergovernmental policy community of subcommunities
composed of bureaucrats, legislative personnel, interest group leaders, researchers, and specialist
reporters within a substantive policy area” (Sabatier, 1991, p. 148). The success associated with
the implementation of SOX, heavily relies on the various agencies that are authorized to oversee
the market’s compliance. Some of the few federal and non-federal agencies include the Securities
and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the
American Institute of Certified Public Accountants (AICPA), and the Public Company Accounting
Oversight Board (PCAOB).
The Security and Exchange commission is a federal agency that is responsible for enforcing
certain laws pertaining to finance in the United States, such as the Securities Exchange Act of 1934
(for which it is named). “The mission of the U. S. Securities and Exchange Commission is to
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protect investors, maintain fair, orderly, and efficient markets, and facilitate capital information”
(http://sec.gov). They require companies that are listed in the stock exchange or issue stocks to
the public to submit audited financial statements to the agency. One of the responsibilities of the
organization is overseeing private regulatory bodies that are a part of securities, accounting, and
auditing fields. The SEC partners with the private sector to develop various accounting principles,
approving or denying the standards suggested.
The Financial Accounting Standards Board’s mission is
“to establish and improve
financial accounting and reporting for guidance of the public, which includes issuers, auditors, and
users of financial …
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