The Sarbanes-Oxley Act (SOX), when it was initially passed in 2002,
did exactly what it initially set out to do. “Its main objectives are to
restore investor confidence in the securities markets and to deter
future corporate frauds.” (Messier & Prawitt, 2019) Congress was
under immense pressure to do something about the falling
confidence in the stock market because of the many high-profile
fraud cases of the early 2000s like Enron, Tyco, and Worldcom.
(Kenton, 2022) The implications of the “Big five” accounting firm
Arthur Andersen in the Enron case meant that confidence in the
stock market and the accounting/auditing profession as a whole had
taken a hit. Passing SOX put a requirement on companies to have
independent and competent boards, expanded regulatory oversight,
and updated the best practices of private companies, among many
other necessary policies. (Quick, 2022)
I think the best parts of the SOX act are the whistleblower
protections, harsher penalties for fraud perpetrators, and the
independence requirements for auditors and accounting firms. Some
detractors of the act state that the regulatory compliance costs are
too high and have limited the number of smaller companies that can
afford to go public, as well as increasing major companies that never
do go public to spare the expense and oversight requirements put on
public companies. (Quick, 2022) I think the trade-off is still beneficial
after the act was passed 20 years ago. The act was passed to improve
the public’s confidence in the stock market, so sacrificing the
transparency of a few private companies is worth the confidence in
publicly held companies in the market.
References
Kenton, W. (2022, July 8). Sarbanes-Oxley (sox) act of 2002 definition.
Investopedia. Retrieved September 1, 2022, from
https://www.investopedia.com/terms/s/sarbanesoxleyact.asp#:~:text=The%2
0Sarbanes%2DOxley%20Act%20of%202002%20came%20in%20response%2
0to,Tyco%20International%20plc%2C%20and%20WorldCom.
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance Services: A
Systematic Approach 11th Edition. McGraw Hill Education.
Quick, W. E. (2022, July 19). Sarbanes-Oxley Turns 20: A Look-Back to See Ahead.
Polsinelli. Retrieved September 1, 2022, from
https://www.polsinelli.com/publications/sarbanes-oxley-turns-20-a-look-
back-to-see-ahead
