Pros And Cons Of The Sarbanes-Oxley Act

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Sarbanes-Oxley Act also known as Sarbox or SOX came into effect on the 30th of July, 2002. This act brought about many changes to corporate government regulations as well as the financial practices. The chief architects of SOX were US senator Paul Sarbanes and US Representative Michael G. Oxley. Organizations like Enron, Worldcom, Xerox, MicroStrategy, Sunbeam etc. have one thing in common. They all have gone through serious accounting scandals due to flaws in their corporate governance. SOX was enacted as a reaction to these scandals. The other reasons are: 1. For protecting the investors 2. To detect fraud easily by resorting to practices like internal auditing 3. To build up the public confidence in public accounting as well as securities traded publicly 4. Make people more aware and accountable which in turn…show more content…
Each and every company has to follow certain rules about the various accounting practices. The act clearly points out the do’s and dont’s for the company. Thus the accountings of a company will turn out to be more accurate. 2) This act helped the investors restore their failing faith in the system. Investors were not sure if the information provided to them were true due to the scandals due to companies like WorldCom and Enron. The odds of misinterpretation of information by a company are reduced to a great extent. 3) The next advantage is the individual accountability in a company. The individuals are prone to the consequences in cases of fraud or non- disclosure. All these steps are clearly described in the act. CONS OF SARBOX 1) It is a very expensive task to implement all these set of rules. Companies have to invest a large sum of money. The act has merely described the rules but no indication has been provided as to how the companies should go about implementing these. Thus the companies have to develop their own system which involves a great deal of innovation and
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