Sarbanes Oxley Act was a good step in the right direction but that, like any piece
of legislation, it has issues. The Sarbanes Oxley Act was essentially a response
to the numerous corporate financial scandals and crimes that took place in the
early 2000s and throughout the 1900s. Major public news stories described
unbelievable ponzi schemes, pyramid schemes, dishonest accounting practices,
and sketchy business agreements. Regulators and the general public were
outraged by scandals such as Worldcom, Enron, Tyco, Arthur Anderson, and
several more. All of those names represented some of the largest forces in their
industries before their failures. “Andersen’s primary asset was its reputation for
competence, professionalism, and integrity. That reputation was damaged prior to
the Enron scandal by a string of questionable practices and audit failures
(involving Sunbeam, Waste Management, the Baptist Foundation of Arizona, and
others) and was finished off by the Enron scandal and the firm’s subsequent
indictment” (Messier, et al, 2018). Everything from fraudulent accounting practices
to actually shredding financial statements was performed by Anderson. Losing
one of the largest and most respected public accounting firms in the world was
probably the final wake up call for the accounting profession. The public
demanded a response from regulators who then passed the Sarbanes Oxley Act
of 2002 which addressed four key areas: corporate responsibility, white collar
crime punishments, regulation of accounting practices/standards, and new
protections for investors. In my opinion, these new standards and regulations
were necessary to combat the essentially self-regulated accounting profession. It
was also necessary because assets, liabilities, financial instruments, etc. were
becoming far more complex and continue to do so. However, I do agree that the
Act has several issues. While I think there needs to be punishments in place for
those who commit fraud or financial crimes, research shows they do not act
effectively as deterrents. Eugene Soltes suggests that “when decisions are made
intuitively, it's easy to largely ignore or even entirely overlook their possible
consequences. The cues that tell us to slow down and think more deeply about
the potential effects of a choice are often absent. It’s only later, when the effects
are revealed, that we appreciate that some decisions should not have been made
so quickly” (Soltes, 2016). Soltes goes on to provide several other solutions
besides punishments and basic ethics training. For example, people need
uncomfortable dissonance to stimulate a reevaluation of their initial intuitive
judgments. It’s similar to the discomfort everyone feels when they are driving and
pass a police car on the highway. Upper management and lower employees alike
need this same shock to begin a reassessment of their actions.
In Conclusion, while I feel Sarbanes Oxley was definitely a step in the right
direction, increasing punishments and prison sentences may not lower the
frequency of these crimes. However, for those who understand the ethical
implications of the crime they are about to commit and then still choose to commit
the act, I believe punishment is a proper course of action. These harsher
punishments and the Sarbanes Oxley Act of 2002 also send a strong and clear
message that regulators are taking these crimes seriously. Society as a whole is
taking these crimes seriously and treating them how they would any other crime
despite the disparity in complexity and who commits them. Less than 200 years
ago, white collar crime was not even considered a crime because the people
committing it were generally pillars of the community. I am happy society as a
whole has changed its view and the Sarbanes Oxley Act is a continuation of
regulators' battle against changing standards, practices, business and criminal
activities.
Messier, W. F., Glover, S. M., & Prawitt, D. F. (2019). Auditing &
Assurance Services: A systematic approach. McGraw-Hill Education.
Soltes, Eugene F. Why They Do It: Inside the Mind of the White-
Collar Criminal. New York: PublicAffairs, 2016.
