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What is Sarbanes-Oxley?
Home » Accounting » Sarbanes-Oxley » What is Sarbanes-Oxley?In 2002, President Bush signed into law the Sarbanes-Oxley Act, a law designed to revise financial procedures and increase ethical standards among American companies. This law has been routinely described as the most far-reaching corporate law since the laws passed in the 1930s in response to the Stock Market crash of 1929.
The push for a new corporate oversight law arose from the flurry of corporate scandals over the past five years. The Enron scandal received the greatest (or worst) notoriety, but many other companies—WorldCom, Arthur Anderson and Tyco, to name three more—contributed to the worry and disgust of the American investor and public. Thousands, perhaps millions, of Americans lost their retirement savings in the financial wake of these scandals, and Congress responded with the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act primarily deals with truth in financial reporting. Among other things, Sarbanes-Oxley established a Public Company Accounting Oversight Board (PCAOB), which operates under the Securities and Exchange Commission (SEC). Sarbanes-Oxley requires companies to both report on their finances and to be checked by independent auditors.
In the wake of the corporate scandals, increased federal oversight of corporate America was both inevitable and necessary. According to a June 2003 PricewaterhouseCoopers survey, however, only thirty percent of American Chief Financial Officers approved of Sarbanes-Oxley. In the end, though, while it is probably too early to judge the effectiveness of Sarbanes-Oxley, companies simply need to deal with the reality it presents.
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