Document Type

Occasional Paper

Publication Date

6-2005

Abstract

In the wake of the 2001-2002 Arthur Andersen accounting scandal and collapse of Enron and WorldCom, the government, the investors and the American public demanded corporate reforms to prevent similar future occurrences. Viewed to be largely a result of failed or poor governance, insufficient disclosure practices, and a lack of satisfactory internal controls, in 2002 Congress passed the Sarbanes-Oxley Act seeking to set standards and guarantee the accuracy of financial reports.

The Sarbanes-Oxley Act (known as SARBOX or SOX) sought to address these concerns through making executives responsible for company accounting statements, redefining the relationships between corporations and their auditors, and restructuring the internal audit systems of public corporations. Since the implementation of the law, SOX has redefined the corporate accounting world. It is widely viewed to be the most important piece of corporate governance and disclosure legislation since the Securities Act of 1933 and Securities Exchange Act of 1934.

This paper first outlines the provisions of the SOX Act, analyze its implications for firms and investors, and then address some of the key external effects of the implementation of and compliance with the SOX Act.

 
 

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