The birth of the Sarbanes-Oxley Act
Ten years ago, the US capital markets were shaken by revelations of financial wrongdoing at numerous major companies. The damage to investors, pensioners, communities and markets was historic.
Corporate executives were jailed. One of the nation’s largest companies and one of the largest audit firms went out of business. After hundreds of corporate earnings restatements, confidence in financial markets was shaken to the core.
To restore public confidence in the reliability of financial reporting, the US Senate and House of Representatives passed the Sarbanes-Oxley Act of 2002, by votes of 99-0 and 423-3, respectively, sending it to President George W. Bush, who signed the reform measure into law on July 30, 2002.
Since its enactment, the Sarbanes-Oxley Act, or SOX, has been both heralded and maligned. We believe it is important to consider what the Act was actually designed to do and to revisit the significance of its impact.
SOX was designed to enhance the reliability of financial reporting and to improve audit quality. We believe it has done both; although, more work surely remains.
This report reviews the Act’s key provisions, perspectives on some improvements brought about by SOX and opportunities for further enhancements to the financial reporting system.