Professor Phillip Miller
Principals of Management
12th, December 2012
Sarbanes-Oxley Act’s Impact on Corporate Business
Business scandals, Ponzi schemes and fraud are something we have all heard of. Over the years there have been many accounting scams from companies all over the world. We all remember one of the most publicized cases of fraud, Enron. For many years there has been fraudulent activity in many companies. Sarbanes-Oxley was established to prevent these types of scandals. Some believe it is not as valuable as once predicted, but is anything 100% preventable?
Prior to Sarbanes-Oxley Act, the Securities and Exchange Commission was ...view middle of the document...
This news sparked the Securities and Exchange Commission and a formal investigation began. By the end of 2001 Enron files for chapter 11 bankruptcy, the largest bankruptcy in U.S. history at that time, and leaves their employees with absolutely nothing. The many years those employees invested in their stock and pensions within the company were taken away by the fraudulent activity of the executive team, CEO’s and some people on the board of directors. These crimes resulted in
millions of dollars stolen from the employees, prison sentence for the CEO and executives involved, a suicide by a vice chairman, and a death due to a heart attack of one of the CEO’s. Thankfully by 2011, because of an agreement between the prosecutors and the defense, Kenneth Skilling agreed to give back 42 million to be disbursed to the employees impacted by the devastation. Not nearly enough to completely repay the employees, but something was better than nothing. This scandal is also one of the many reasons that Sarbanes-Oxley Act was born. If there was more accountability put on the accounting teams, CEO’s, VP’s executive teams and board of directors, some of these men and women may have thought twice before committing fraud. The former CEO Jeffery Skilling, received 24 years in prison for his involvement and conspiracy fraud, false statements and insider trading.
Sarbanes-Oxley is not a 100% guarantee that fraud will not happen in a business, it just makes it harder to do. It raises red flags and makes people personally accountable for their actions. It also forces the CEO’s and CFO’s to personally vouch for the accuracy of the quarterly and annual reports. Another impact Sarbanes-Oxley has on companies is “requires businesses to establish a code of ethics or explain why they have not; and established the Public Company Accounting Oversight Board, which now regulates auditors and accounting firm”(Strain). SOX has cost companies hundreds of millions annually to implement and enforce. “Sarbanes –Oxley is thought by many as the answer to fraud” however it “was intended to restore faith in the integrity of corporations and executives” (Coenen). There is plenty of crime continuing to happen in companies all over the world. Sarbanes-Oxley cannot prevent all kinds of fraud, it can just keep a close watch and be the second eye on the financial audits that companies have.
The impact Sarbanes-Oxley Act has had on corporate America is great. “SOX has lead to greater internal control of financial reporting and increased expertise and independence among more-focused boards, committees and directors” (Maleske). It prevents and makes accounting fraud much harder to do, but not impossible. It takes away the excuse from top executives that they were unaware because they are not an accountant. It also has given investors somewhat of a piece of mind. It certainly doesn’t guarantee the investment will be good, but it allows the investor to have a peace...