How Successful Has Sarbanes-Oxley Been in Correcting Abuses?

In 2000, Enron, an American energy and service company, grew up in the big company of the U.S. sales seventh place and had the employee approximately 21,000. However, their management was supported by a large amount of injustice accounting and unfair dealing. When the scandal was spotted, Enron was driven into the failure in December, 2001. The aggregate amount of indebtedness at the time of the failure was at least $16 billion. However, Enron was not the only one doing illegal act. Although Arthur Andersen, which was one world biggest accounting firm, was an auditor of Enron to inspect the contents of the financial report, they missed the off-balance sheet transaction and a big sum debt of Enron. The U.S. lost the reliability of financial report in the world. To regain the reliability, the U.S. established the Sarbanes-Oxley law (SOX). The paper will discuss about the advantages and disadvantages of SOX, and its effects.

The Sarbanes-Oxley Act of 2002 is the federal law of the United States of America which was established under Harvey pit, who was U.S. Securities and Exchange Commission chairperson in 2002. The purpose of the SOX is improving the reliability of corporation accounting and financial statement. The Sox was established to deal with the corporate accounting and scandal such as Enron case and WorldCom case. It was the biggest change in the finance business since the Federal Securities act and the establishment of federal securities laws in 1934. Sox exist to tighten the financial report process and legislation of the regulation for investor protection. Plus, there are also independency reinforcement of the inspection, reforming of the corporate governance, reinforcement of the information disclosure, and various rules of the accountability. The rules were established for securing the reliability of corporate accounting and financial statements.

The SOX is compromised by all 11 chapters and 69 texts.

1. Public Company Accounting Oversight Board (PCAOB)

2. Auditor Independence

3. Corporate Responsibility

4. Enhanced Financial Disclosures

5. Analyst Conflicts of Interest

6. Commission Resources and Authority

7. Studies and Reports

8. Corporate and Criminal Fraud Accountability

9. White Collar Crime Penalty Enhancement

10. Corporate Tax Returns

11. Corporate Fraud Accountability

There are particularly important contents.

* Section 404

* A manager must work on an internal control to make an appropriate financial report. Chief executive officer (CEO) and the chief financial officer (CFO), have to evaluate and maintain effective internal control which works on a financial report. They must report three things in an annual report; evaluation result of the internal control, an expectation station that outside inspector published, and a report that a manager has responsibility.

* A manager and a CEO should obtain an appropriate opinion from outside inspector.

* A CEO and a CFO should make a written oath on which they vow to report a company's financial report appropriately, and they must submit a commuter pass report and an annual report to the SEC. If they fail to report it, there will be some penal regulations. The penal regulations would be imprisonment less than ten years or penal fee 1 million dollars when violated. In the case of intentional violation, the penal regulations are imprisonment less than 20 years or penal fee 5 million dollars.

Advantage of Sarbanes-Oxley

* Reduce the cost of disclosure process, enhance internal controls management, and increase investor confidence.

* Increase the responsibility of the management for the company's financial statement.

* Establish and maintains the overall process of companies.

* Decrease the risk of financial fraud, decrease errors and improves the accuracy of financial reports.

* Creates a process for report certification.

Disadvantage of Sarbanes-Oxley

* Increasing the number and function of internal controls delays financial statement preparation.

* Increasing the number of audits and accounting firms increases business costs.

* Companies must add accounting personnel.

* Some regulations of sox