Sarbanes-Oxley Act, also known as the SOX, was passed in the year 2002 in the United States of America to not only strengthen and fortify the Corporate Governance of the country but also to re-install confidence in the average investor. The SOX Act was known as the Sarbanes-Oxley Act because the U.S. Senator Paul Sarbanes and the U.S. Representative Michael Oxley sponsored it. The factors that led to the necessity of this act were that, primarily, there were a number of accounting as well as corporate scandals affecting the corporate structure of several famous and prominent companies of the U.S.A. As an inevitable result of these scandals, there was a loss of trust on the part of the people of America in the several different accounting and reporting practices in the corporate world of the United Sates of America. The Sarbanes-Oxley Act provides wider legislation facilities as well as sets new standards of working for all the numerous Public Company Boards of the U.S.A., all their management, and all Public Accounting Firms. (IT and Business Tutorials) The SOX Law is comprised of 11 sections, each of which deals with subjects like Additional Corporate Board responsibilities, to Criminal penalties. The Security and Exchange Commission will be required to implement and carry out the rulings that must be made to comply with this new SOX Law. Not only does the Sarbanes-Oxley Act establish new standards for Corporate Boards and also for Auditing Committees, but it also creates and establishes certain new accountability standards for Corporate Management and also establishes the criminal penalties in case of management offences. External Auditors are also governed now under the new independence standards made up by the Sarbanes-Oxley Act. It has also served to establish a new Public Company Accounting Oversight Board, known as PCOAB, under the SEC or the Security and Exchange Commission so that the rulings under the new Law can be implemented to comply with the SOX Act. (IT and Business Tutorials)

There is a general consensus that the Sarbanes-Oxley Act is in fact more of a burden than a boon to financial investors and Corporations. Why is this so? One opinion is that the compliance with the Sarbanes-Oxley Act is extremely difficult and also cumbersome in many ways, in fact so unwieldy that the deadline for its implementation has in fact been delayed two times now by the Government of the United States. However, despite the aforesaid difficulty, it is true that several Companies are already under the compliance of the Act, even when they do not have a formal auditor sign-off. This maybe good, but it is the unavoidable burden of compliance to the Act that has put several Companies into a difficult position. (Sarbanes-Oxley: The Pain Ahead)

It is these companies that will either have a 'material weakness' or a 'significant deficiency' as a part of their working, as put across by their auditors. These companies will also see to it that their performances are improved dramatically within the next few years by the method of a total restructuring of their control processes. If similar moves were to be made by all the finance companies in their control processes, then compliance would be achieved as soon as possible, and fraudulent activities in these companies would come to a complete halt, thereby improving the very nature of the corporate world of the United States of America. (Sarbanes-Oxley: The Pain Ahead)

The very purpose of the Sarbanes-Oxley Act that was signed by the American President George W. Bush in the year 2002 being that of inculcating and promoting a greater transparency and lucidity and better control in the entire accounting processes in the several Corporations of the United States of America, all the listed Companies, both CEOs and CFOs were asked to comply by submitting declarations stating the correctness of their accounting processes, and any willful misinterpretations would be punishable by the imposition of fines amounting to $5 million and/or imprisonment for up to 20 years for the offender. Therefore compliance was a must even though some companies felt that it was quite a time and energy consuming process. When compliance to the Sarbanes-Oxley Act is achieved completely, then the Corporation must take it upon itself to maintain this type of transparency in its day-to-day working and running of the company. This may include the basic knowledge of the various problems within the company, the complete and the thorough control of the various processes involved in the day-to-day running of the Corporation and the comprehensive management...

(Sarbanes-Oxley: www.egip.com)
Therefore, all Corporation in the United States of America were expected to comply with the Sarbanes-Oxley Act in areas such as the certification of the financial reports by CEOs and the CFOs, the imposition of the ban on offering and granting personal loans to all Executive Officers and Directors of the corporation, the speeded reporting of trades by the insiders of the corporation, the imposition of certain prohibitions as states by the Sarbanes-Oxley act, like the prohibition on insider trading especially during certain times like for example during pension funds black out times, the disentangling and the disgorgement of the CEO and the CFO profits and compensations, the provisions of additional disclosures, the granting of a certain amount of independence to the auditor, like for example, allowing him to take the liberty of banning out rightly some kinds of work as well as certain pre-certifications of other forms of non-audit work by the corporation's Auditing Committee. The Sarbanes-Oxley Act can also handle the several security violations faced within the Corporations by providing the Corporations with the facility of imposing civil and criminal penalties wherever applicable. (Sarbanes-Oxley Act: www.bambooweb.com)

These were a few of the scandals that swept the Corporations of the United States of America during the period of 2000 to 2002 that led to the necessity of the Sarbanes-Oxley Act and its imposition and its period of compliance, whether the corporations approved of it or not. Quite a few major companies in fact admitted to having falsified their accounts to their own advantage, and mis-stating their real and actual status to the trusting public. In Public Companies, such misrepresentations can be termed as actual 'frauds' and therefore punishable by law. A series of investigations carried out by the U.S. Securities and Exchange Commission during that period unraveled frauds amounting to more than billions of U.S. Dollars. One such fraud was that perpetrated by the famous 'Xerox Corporation', also known as the 'Document Company', that is the world's largest supplier of office paper-copier machines to companies all over the world.

It was during the early1960's that the company attained prominence and the status of being one of the better manufacturers of copier machines in the world, when the Xerox 914 was launched. After this event it was a roll in fame for the company as it began to expand and branch out to many parts of the U.S.A., including a research center named the Xerox Palo Alto Research Center started in the year 1970 in Palo Alto, California, USA. By the early 1980's the company had its hands in a lot of areas, like laser printers and advanced typewriters, only these were launched at the wrong times. For example, when the advanced typewriter was launched, the computerized 'word processor' had already come into the market, and there was actually no place for the typewriter at this time; it was outdated even when it was launched. There followed a gradual decline, and there was an attempted revival in the 19800's to the 19900's at which time the Xerox 'digital photocopiers' were launched with better design and better realignment of its entire product line. (Xerox)

Any advantage in profits that the Company was finally able to enjoy was lost out when the competitors fought to stay ahead or to catch up with the Xerox Corporation. These hundreds of billions of dollars of losses were, however, hidden from public view through a series of fraudulent but at the same time, creative accounting practices. One of these methods was like this. A person can rent out a copier machine; in other words, he does not have to buy it immediately but can acquire it after a specified period of time stated by the company. How must the company account for the income derived from this type of 'rent-to-own' transactions encouraged by it? In any conventional accounting procedure, a standard rental payment is divided into two parts: separating the payment for the copier machine as it was from the payments accrued for servicing and so on.

Therefore the company had the obligation to book the entire return on the first stream, just like it would if it had in fact completed an outright sale of the copier machine, and any payments for the purpose of servicing and repairs would be made separately and cash paid for it. Xerox perpetrated a fraud by booking the entire transaction as one whole income stream by the year 1998, by altering and…