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Analysis Of The Sarbanes-Oxley Act

808 Words4 Pages

Many preparer, auditors and external users think accounting standards should have fewer rules. However, due to misconduct, improper financial reporting and accounting manipulation, more rules are being implemented(Bagshaw, 2006). Accounting standards are written in order in to achieve desired financial result.
In 2002, after the collapse of Enron, together with the big 5 auditing company, Andersen, and as the audit failure piled up, investors lost confidence in managers, companies and market intermediaries. The auditors pointed their fingers to the standard setter, FASB and the standards they have set, GAAP, and said that the rules were insufficient(Bratton, 2004). Further, Joe Berardino, managing partner of Andersen firm, stated his auditors …show more content…

It led to the consideration of changes in accounting standards in the US. In 2002, the FASB published a document seeking view on whether it should move towards a more objective-oriented principle rather than rules(FASB, 2002). The way thus prepared, the US Congress made its own call for principles when it enacted the Sarbanes-Oxley Act of 2002 (SOX), a legislation that attempts to restore confidence in the securities market, an aftermath of ENRON. Consequently, the events that led to SOX were when the stock market boomed in the mid 1990’s. Stock prices rose from mid-90’s through 2000. New entrants did IPO and resulted to a boom in the financial market. It brought billions of dollars to individuals and their savings went into the stock market(Bratton, …show more content…

Tennesse CPA Journal, 2007, wrote that 38 companies reported fraud incident in the US and 12 companies under IFRS. Based on the 10th Global Fraud Survey of Ernst and Young (2012), 16 percent reported globally that their company has experienced fraud, 21 percent in Western Europe and 9 percent in North America(EY, 2011). Furthermore, EY’s report, Overcoming compliance fatigue: reinforcing the commitment to ethical growth, 2014, stated that ten countries recorded significant increase of fraud incident, including the US with 16 percent in 2014, up from 8 percent in 2012 and 26 percent in Germany(EY, Overcoming compliance fatigue: reinforcing the commitment to ethical growth, 2014) ( see exhibit

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