Sarbanes Oxley Act (SOX) was enacted by congress in 2002. It was a
direct result of the bankruptcy of Enron, and WorldCom and the
collapse of Arthur Anderson. Enron and Worldcom were committing
major fraud and many people lost a lot of money based on the fraud.
The Audited financial statements are supposed to audit internal
controls as well as attest to the numbers being reported. The Auditors
failed to see that Enron was taking loans from banks using Special
Purpose Entities and then reporting it as income on there financial
statements. No one was really held accountable for such fraud. Now
with the SOX act, the companies CEO, CFO, and the Auditor must
personally sign and guarantee the financial statements or face severe
jail penalties.
The author in the Article "The "SOX" Effects on Small Companies"
describes challenges that SOX creates for a smaller company. The
first is the Audit Fees. Since SOX was implemented Auditing and
Attestation fees have increased significantly because attestation from
Auditors were required for smaller companies starting in 2007. SOX
has many requirements that may prevent a smaller company from
ever going public. The author of the article feels that SOX has swung
the pendulum too far the other way now.
https://blj.ucdavis.edu/archives/vol-5-no-2/the-sox-effect.html
