The Sarbanes-Oxley Act was established in 2002 by the Securities Exchange Commission in response to the fraudulent behavior by Enron and its auditor, Andersen & Co. Enron falsified its financial statements by granting its auditor enormous consultation fees. The audit firm failed to take the time and look at Enron’s financial statements for any misstatements and loopholes. Thus, it lacked honesty because it was more concerned on maintaining its clients rather than ensuring that they were not committing fraudulent behavior. Andersen lost its right to practice auditing for clients and Enron was punished for its behavior by filing bankruptcy. Thus, auditors need to maintain independence, when reviewing client’s financial statements (Brooks & …show more content…
Clients have to make sure their company’s management certifies in writing the legality of the company’s financial disclosures .This helps to ensure that companies are refraining from fraudulent behavior because they can face severe punishments. Also, the Sarbanes-Oxley helped the Securities Exchange Commission to establish the Public Company Accounting Oversight Board. This Board helps to ensure that companies use effective internal controls which prevent them from committing any misleading or illegal practices to their financial reports, if not they will face harsh penalties, sanctions, and registration suspensions (Emrich, 2005). The success of Sarbanes Oxley has benefited the companies by lowering the risk of management to make misstatements and irregularities to their financial reports. Also, communication between management and its external auditors has greatly improved. Thus, this has enabled trust with companies’ shareholders and customers and the improvement of audit …show more content…
The internal controls should be inserted and approved by managers to help company’s success in the long term. Also, the benefits of SOX have helped to enhance better communication between management and its external auditors. This is important because it helps auditors alert the management of any financial information that is incorrect or fraudulent. Auditors have to ensure that they meet with the management and board members regarding any issues about their financial statements that may lead to punishment. Unfortunately, the cost of the Sarbanes Oxley has affected many firms’ ability to grow and make profit because many firms have to pay excessively for compliance fees and internal controls. Thus, this has discouraged firms to join the public market. Sarbanes Oxley costs are far greater than the benefits for many