The Sarbanes-Oxley Act Case Study

Senator Paul Sarbanes and Representative Michael Oxley drafted the Sarbanes-Oxley Act or "SOX" in 2002 in order to curb the incidence of corporate fraud. The “Act” was signed into law on July 30th 2002 by President George W. Bush with the express purpose of restoring public confidence in the financial markets; and after enacting “the Act”, neither Sarbanes or Oxley would run for re-election in the 2006 elections (Jahmani & Dowling, 2008). The intent of the SOX Act was to protect investors, and any other stakeholders in a company, by improving the validity and reliability of corporate disclosures, such as financial statements and earnings reports, pursuant to existing securities laws and regulations governing publically traded companies (Kessel, 2011). The SOX Act holds corporate Chief
A quasi- governmental agency called the Public Company Accounting Oversight Board (PCAOB) was created and charged with direct oversight and regulation of the accounting industry (Jahmani et al., 2008). PCAOB works in conjunction with the Securities and Exchange Commission (SEC) to provide oversight of all public accounting firms and publically traded companies with the expressed purpose of protecting “ the interests of investors and further the public interest in the preparation of informative, fair and independent audit report” (PCAOB 2002)
Two key components of SOX are 1) a requirement to develop a Code of Ethics for senior financial officers, including enforcement mechanisms and 2) a requirement that outside auditors be rotated every five years (Orin, 2008). Other key components are the criteria for director independence, composition and responsibility of the audit, establishment of compensation and nominating committees, written codes of conduct and ethics, disclosures pertinent to controls and procedures, internal control over financial reporting, and whistle-blowing (Kessel,