Critique of the Effectiveness of the Sarbanes-Oxley Act

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Recommended: The Enron scandal that prompted the Sarbanes

Background George W. Bush called the SOX Act “the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt”. It has been a decade since the Sarbanes-Oxley Act became in effect. Obviously, the SOX Act which aimed at increasing the confidence in the US capital market really has had a profound influence on public companies and public accounting firms. However, after Enron scandal which triggered the issue of SOX Act, public company lawsuits due to fraud still emerged one after another. As such, the efficacy of the 11-year-old Act has continually been questioned by professionals and public. In addition, the controversy about the cost and benefit of Sarbanes-Oxley Act has never stopped. Introduction Sarbanes-Oxley Act, which contains 11 sections, was originally created by Senator Paul Sarbanes and Representative Michael Oxley in response to the several exposed accounting scandals, including WorldCom and Enron as the most prominent examples. As a result of these accounting scandals being exposed one after another, the confidence that investors had put in the capital markets collapsed overnight along with those companies that engaged in huge frauds. Sarbanes-Oxley Act of 2002 had been passed to redeem the reputation of the markets. With its stated purpose, which is “to protect investors by improving the accuracy and reliability of corporate disclosures,” SOX Act came into effect in 2004. However, the deadlines of compliance have been extended several times due to the significant costs incurred by companies’ compliance of the SOX Act. In addition to the dollar amount required to spend, another real cost that cannot be ignored. As stated by Peter Bible, the CAO of General Motors Corp, “having ... ... middle of paper ... ...nd benefits of Sarbanes-Oxley. Retrieved from Forbes: http://www.forbes.com/sites/hbsworkingknowledge/2014/03/10/the-costs-and-benefits-of-sarbanes-oxley/ Hunter, B. (2007, March 7). PUNISHING THE INNOCENT: THE SARBANES-OXLEY ACT. Retrieved from FEE: http://www.fee.org/the_freeman/detail/punishing-the-innocent-the-sarbanes-oxley-act#axzz2t89PTgDu Jagan Krishnan, D. V. (2008, May). Costs to Comply with SOX. Auditing:A Journal of Practice& Theory, pp. 169-186. Miller. (2006, February 20). Cost of Sarbanes-Oxley driving companies into the dark. Philadelphia Business Journal. RITTER, H.-C. C. (2000, June). The Seven Percent Solution. The Journal of Finance, pp. 1106-1131. SEC. (2008, December 16). SEC Survey Regarding Costs and Benefits of Rules Implementing Section 404 of the Sarbanes-Oxley Act. Retrieved from US Securities and Exchange Commission: http://www.sec.gov

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