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Effectiveness of Sox Act

In: Business and Management

Submitted By deepti1412
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The effectiveness of the Sarbanes Oxley Act 2002

The financial scandals of Enron, WorldCom and some other large companies in the beginning of this century, encouraged Congress to introduce the Sarbanes Oxley Act (SOX) 2002 in order to fight the escalating commitment of financial statement fraud. The main objective of this legislation was to recover the investors’ trust in the American stock market, and enhancing the prevention and detection of corporate fraud. In this thesis I would like to analyze the effectiveness of SOX 2002 in preventing financial statement fraud, corporate governance characteristics and effective internal control systems.
Finally, the results of the study showed that SOX has not been able to prevent or reduce the likelihood of financial statement fraud.

Introduction

Since the last 20 years the global economy has been facing a dramatic flow of accounting scandals committed by CEOs and managers of prestigious entities known all around the world. One of the most notorious fraud cases in the last decade was that of Enron where debts were hidden, revenues were inflated and the presence of corruption was uncovered. Other similar cases that also battered the accounting world were those of Adelphia Communications and Global, WorldCom, Parmalat, AIG and Tyco International. Most of these scandals took place during the latter years of the previous century and in the beginning of 2000. These actions obviously triggered a high level of uncertainty regarding the accuracy and reliability of financial statements by investors, creditors and other agents. Moreover, this also contributed to less confidence in the audit profession since one of the most well-known auditing and assurance firms, Arthur Andersen LLP, was involved in the Enron case. Consequently, this has put a lot of pressure and stress on the audit profession, because the whole world has...

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