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Sarbanes-Oxley Act: Cost Benefit Analysis

The Sarbanes Oxley Act was signed into law by President Bush in 2002. This Act was in direct response to the accounting scandals of the early 2000s. A time that I remember very well, because I’d just graduated from college into the accounting industry, and it was in a total uproar. The Sarbanes Oxley Act (SOX) ordered a number of reforms to enhance corporate responsibility, financial disclosure, and to fight corporate and accounting fraud. This regulation also put financial as well as criminal pressure on the perpetrators, including the auditors. The Sarbanes Oxley Act (SOX) was named after two of its main architects, Senator Paul Sarbanes and Representative Michael Oxley. The SOX Act is composed of eleven titles. They are: Public Company Accounting Oversight Board, Auditor Independence, Corporate Responsibility, Enhanced Financial Disclosures, Analysis Conflicts of Interest, Commission Resources and Authority, Studies and Reports, Corporate and Criminal Fraud Accountability, White Collar Crime Penalty Enhancement, Corporate Tax Returns, and Corporate Fraud Accountability. This Act requires that top management assume responsibility for the financial records that are put out by the corporation. The have to sign off on the information before it is released. This is covered in Section 302. They are certifying that the report does not contain material untrue statements and that the statements provide a fair picture of the financial condition of the organization. This Act also put in place very large penalties for violation any of the rules of this regulation. This is covered in Section 802. Section 802 states that it can impose penalties of fines and/or up to 20 years imprisonment for altering or falsifying records. Sarbanes Oxley applies to all public companies in the United States, as well as, any international...

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