Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002, a controversial federal law put in place because of the numerous Wall Street scandals of the recent past, was designed to reverse the declining public trust in accounting and reporting by the major public entities. The law is broad in its attempt to establish new rigorous standards for the publicly traded companies, their management, and the accounting firms who oversee their practices. Part of the Act includes the establishment of the Public Company Account Oversight Board. Its job is to audit the auditors. Another important area of the Act is the requirement of certification of financial reports by chief executive officers, chief financial officers, and others who may be in a fiduciary position within the company. This certification basically inserts a stamp of approval by those in charge of the company. Finally, the Act has enhanced criminal and civil penalties for violations of securities laws. Those who are convicted of wrongdoing will face harsher repercussions by the government.

The costs of implementing SOX have been quite high. Because of the significant financial burden faced by public companies, the necessity of the law has been questioned. Even though the costs fall as the companies familiarize themselves with the internal workings of the Act, studies have shown that a decrease in listed public companies is on the horizon. It is both easier and more cost-effective for a company to move to a foreign exchange with less rigorous laws than it is to implement the criteria required by the US government. The cost of implementing SOX directly transfers to the investing public. The bottom line is hit with significant expenses, therefore lowering profits, and finally reducing the price per share. The benefits, on the other hand, are not readily felt. The investing public is non-trusting of public corporations and their government oversight. Time will bring clarity to the benefits of the Act.

SOX, in my opinion, will not lead to less corporate wrongdoings. The pressures of corporate success, the ineffectiveness of the SEC, the fraud perpetuated by the NASD, and old-fashioned greed still remain integral parts of Wall Street. Politics and the financial markets are intertwined and there is no true clarity as to who is really watching the store. SOX is more of a re-election vehicle than a tool to clean the