Pros And Cons Of Sarbanes Oxley Act Of 2002

Named after its creators Senator Paul Sarbanes and Representative Michael Oxley, the Sarbanes–Oxley Act of 2002 (SOX) was enacted on July 30, 2002 by President George W. Bush. .Sox is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. It is widely known as the most significant reform since the formation of the Securities and Exchange Commission of 1943. Consequently major corporate scandals such as Enron, Worldcom and Tyco led to The Sarbanes Oxley Act. The act sets strict reforms to the financial practices and corporate governance of public corporations, accounting and management firms. The act also contains provisions which impede private companies from destroying evidence during a federal investigation.

Not only can the corporation be held accountable, but also its individuals (executives, officers, and advisers). Willful wrongdoers can face jail time of up to 20 years, which helps deter some offenders from committing fraud. In addition public corporations were forced to strengthen their compliance program. The restructuring of internal policy and controls has increased investor protection; restoring some faith in the financial sector. Officers, executives and directors are required to sign off on SEC filings and accounting documents, certifying the accuracy of financial statements. Another advantage was the creation of The Public Company Accounting Oversight Board (PCAOB), whom oversees the audits of broker dealers and public companies. In light of the strict regulations, corporations have become more conscious of corporate social responsibility and doing the right thing. Many companies in the private sector even began to adopt some of the policy’s, such as the whistleblower program, “best practices,” and strengthening their ethics and conduct

As stated by Karen Seymour, Chief of the Criminal Division in Manhattan’s U.S. Attorney’s office in an interview: “I thought it was going to be a really good tool, But it never really developed.” Karen had expectations of seeing CEOs and CFOs being held responsible for fraud. However, over ten years later and only a few defendants have been charged, of that amount even fewer convicted. One of the most notable SOX cases against HealthSouth CEO Richard Scrushy, ended up in an acquittal. Former CEO of DVI pleaded guilty and was only sentenced to 30 days in prison. Charges against former Vitesse CEO Louis Tomasetta for falsifying documents were also dismissed. Why hasn’t the act been effective? Federal prosecutors state that many corporations have set up compliance controls, which make it difficult to prove that the CEO or CFO knowingly engaged in fraud. Therefore when defendants argue a strong compliance program as a defense, it weakens the false certification