Sarbanes Oxley


November 13, 2012

The Sarbanes-Oxley Act (SOX) was signed into law in July 2002 with the goal of improving the scope of declared information and the rectitude of financial statements of U.S. publicly traded companies through increasing their reporting standards, the implementation of independent audits, and the institution of steep penalties for corporate executives who submit fallacious filings (Botes, 2012). These actions provide increased investor assurance of the accuracy of public financial filings through improving their reliability and breadth of disclosure (Botes, 2012). The following report shows how the Act has impacted outside independent audit firms, the accuracy of public company financial statements and the cost of capital for public companies. The report further discusses the main advantages and disadvantages of the law, what changes should be made to it, and why the legislation cannot guarantee the accuracy of public company financial statements despite the attention CEOs and CFOs are paying to the law.
Outside Independent Audit Firms
Under SOX independent audit firms perform audit reviews of financial filings, in accordance with the Generally Accepted Accounting Principles (GAAP), and under the direction of the Public Company Oversight Accounting Board (PCOAB), in order to assure the disclosure and accuracy of financial filings (Livingstone, 2003; Botes, 2012). Botes notes these reviews provide a uniform platform for sound financial reporting and act as a deterrent of fraudulent accounting practices (2012). She also stated the PCOAB, under the direction of the SEC, administers regulations and sets principles of accounting standards known as Generally Accepted Accounting Standards or GAAS (2012). Audit firms are inspected by the PCOAB, with their frequency determined by the number of audits conducted by the independent firm (American Institute of CPAs, 2012). The American Institute of CPAs reports that...