Sarbanes Oxley Act of 2002

Sarbanes-Oxley Act of 2002

In response to many of the recent corporate and accounting scandals, the U.S. government passed the Sarbanes-Oxley Act of 2002. This act has been a major effect of the Enron and WorldCom scandals that have negatively affected our country’s whole economy. Many of these same types of scandals became present after the passing of SOX in July of 2002. Scandals like Enron and WorldCom gave a bad name to accountants and their profession. Since the release of Sarbanes-Oxley, the accounting profession has increased its stature in the eye of the public.

The act requires that the Securities and Exchange Commission puts into effect the new rulings and requirement into law. The most important piece stemming from the creation of Sarbanes-Oxley was the creation of the PCAOB (Public Company Accounting Oversight Board). The PCAOB is in charge of overseeing, regulating, and inspecting public firms in accordance with Sarbanes-Oxley. The largest issue coming from SOX is the issue of auditor independence. The act attempted to make it easier for employees to act as internal controls with confidential whistleblower lines and by keeping auditors separate from all other implementations of accounting.

Even after seeing the outcome and effects of this act, many believe that Sarbanes-Oxley has done more damage than help to some of the public companies of today. Others believe that it has brought many people to justice which has ruined the lives of tens of thousands of people. Techdirt.com, which is a leading website for views on the Sarbanes-Oxley act, states that “direct costs of compliance, the explosion in private equity and management buyouts, and pushing companies to become private” are all adverse effects of the SOX act. Another opposing opinion to the act was that “SOX hurts the investor by adding extra expenses to the company (effecting dividends)…SOX makes U.S. companies less competitive relative to the rest of the world…it can inhibit decision making and it doesn’t prevent fraud.”

According to www.jdpower.com, Ron Conlin, who is a partner at J.D. Power and Associates, said “Nine out of 10 CFO’s say that the costs of implementing the new rules and requirements associated with the Sarbanes-Oxley act of 2002 are greater than the benefits of those changes.” These results were from a study which is based on interviews with 1,007 audit committee chairs and 944 CFO’s. Conlin also stated, “The results are lower accounting firm performance levels and a decline in the confidence of the accounting profession.”

On the other side of things, Price Waterhouse Coopers openly displays the opinions of its own employees on the issues of the Sarbanes-Oxley act. If you look at their website, www.pwc.com, there are many suggestions about what to add to the act to make it more up to date. Every response concludes that Sarbanes-Oxley has had a profound impact on the accounting world, and that is serves not as rules, but as only a framework of guidelines that accountants are to abide by.

My views on such a topic are very concrete. I believe that every positive has a negative to go along with it. In the situation with the Sarbanes-Oxley act, the public saw the dissolution of two of the United State’s largest company’s (WorldCom and Enron). The public then blamed these frauds on accountants and blamed them for all of those mistakes. SOX was created so that it was easier to point out someone doing wrong, and to stop encounters, such as Enron and WorldCom from ever starting. Sarbanes-Oxley has given firms a certain competitive advantage towards other firms alike. The aftermath of some of today’s largest corporate problems would be avoided if there were proper internal controls in effect in some of the companies that were broken apart before the issuance of SOX.

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