The SarbanesOxley SOX Act was enacted in 2002 as a result of

The Sarbanes-Oxley (SOX) Act was enacted in 2002 as a result of the Enron (and others) scandal. The goal was to ensure that investors get an accurate picture of a company’s finances. Has SOX achieved its objective? Has it reduced fraud or increased fairness? Does it help or hurt U.S. capital markets? Has it increased costs for businesses appreciably? Overall, has SOX been a plus or a minus?

Solution

The Sarbanes-Oxley Act of 2002, commonly referred to as SOX, is a federal law enacted by Congress in response to massive corporate and accounting fraud in the early 2000s. The Sarbanes-Oxley Act (SOX) of 2002 was enacted following a series of failures involving various functions designed to protect the interests of the investing public. It contains several highly controversial provisions.

SOX has been successful in increasing corporate focus on a strong ethical culture in publicly owned companies, there\'s room for improvement in audit firm performance as well as the PCAOB\'s process for assessing and reporting on it.

Sarbanes-Oxley, the 2002 legislation that was supposed to protect investors from fraud by requiring companies to be more diligent in creating and maintaining internal controls and by forcing public company auditors to work harder. People would like to think that the legislation has forced companies to have better internal controls, and therefore fraud risks are reduced. Yet there is no real evidence that fraud risk or actual fraud has been reduced because of Sarbanes-Oxley. Section 404 of SOX act, dictates what companies must do relative to assessing their internal controls.Till now public companies with a market capitalization under $75 million, don\'t have to comply with this section of the legislation. This exemption was created because of the costs of complying with Section 404.

Sarbanes-Oxley has made listed companies much more transparent to shareholders.When management periodically interacts with government officials (such as the Internal Revenue Service) or with shareholders, they can paint an inaccurate picture of the state of the organization. SOX brings accountability and accuracy to these periodic reporting exercises.

Yes it increased the cost for business appreciably. As mentioned in above para, as per section 404 public companies with a market capitalization under $75 million, don\'t have to comply with this section of the legislation. This exemption was created because of the costs of complying with Section 404. Documenting the internal controls process and having the company\'s outside auditors examine those controls is extremely expensive, and was thought to be disproportionately expensive for smaller companies. Typically, expensive enterprise-wide IT systems must be implemented throughout the organization to help facilitate compliance with SOX. Hourly billing rates for associates and managers run into the hundreds of dollars per hour. Millions of dollars in annual expenses are taken out of the bottom line.

SOX has somewhere plus points as it helps in reducing fraud and increases fraud, and it has some minus points too as it is too expensive and criticised by small companies.