Topic > Criticism of the effectiveness of the Sarbanes-Oxley Act

Foreword George W. Bush called the SOX Act “the most far-reaching reform of American business practices since Franklin Delano Roosevelt”. The Sarbanes-Oxley law goes into effect. Obviously, the SOX Act, which aimed to increase confidence in the US capital market, had a profound influence on public companies and public accounting firms. However, after the Enron scandal that gave rise to the enactment of the SOX law, lawsuits against public companies for fraud arose. Therefore, the effectiveness of the 11-year-old law has been continually questioned by professionals and the public. Furthermore, the controversy over the costs and benefits of the Sarbanes-Oxley Act has never stopped. Introduction The Sarbanes-Oxley Act, which contains 11 sections, was originally created by Senator Paul Sarbanes and Representative Michael Oxley in response to the numerous accounting scandals exposed, with WorldCom and Enron being the most prominent examples. As one after another of these accounting scandals came to light, investors' confidence in capital markets collapsed overnight, along with that of companies involved in massive frauds. The Sarbanes-Oxley Act of 2002 was passed to redeem the markets' reputation. With its stated purpose of “protecting investors by improving the accuracy and reliability of corporate information,” the SOX Act went into effect in 2004. However, compliance deadlines have been extended several times due of the significant costs incurred by companies in compliance with the SOX Act. In addition to the dollar amount to be spent, there is another real cost that cannot be ignored. As stated by Peter Bible, the CAO of General Motors Corp, “having…half the paper…and the 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 LAW. Retrieved from FEE: http://www.fee.org/the_freeman/detail/punishing-the-innocent-the-sarbanes-oxley-act#axzz2t89PTgDuJagan Krishnan, D.V. (2008, May). Costs to comply with SOX. Auditing: A Journal of Practice& Theory, pp. 169-186.Miller. (February 20, 2006). The cost of Sarbanes-Oxley driving companies into darkness. Philadelphia Business Journal.RITTER, H.-CC (2000, June). The seven percent solution. The Journal of Finance, pp. 1106-1131.SEC. (2008, December 16). SEC Survey on the Costs and Benefits of Rules Implementing Section 404 of Sarbanes-Oxley. Retrieved from the United States Securities and Exchange Commission: http://www.sec.gov