Curt Verschoor on Ethics

CHAPTER 8REGULATION AND ENFORCEMENT

Has SOX Been Successful?

The Sarbanes-Oxley Act of 2002 (SOX) was enacted following a series of failures involving various functions designed to protect the interests of the investing public. Containing several highly controversial provisions, SOX created a total revision of the regulatory framework for the public accounting and auditing profession and provided guidance for strengthened corporate governance. It was considered to be the most far-reaching legislation affecting public corporations and their independent auditors since the 1930s.

SOX is widely credited for strengthening at least two major areas of investor protection: (1) CEO and CFO responsibility and accountability for all financial disclosures and related controls and (2) increased professionalism and engagement on the part of corporate audit committees. Yet some continue to question its overall value, citing, as an example, its failure to prevent the situations that led to the financial crisis of 2008.

Section 404

One of the most controversial aspects of the Act is Section 404, which requires company management to provide assertions of effective internal control over financial reporting and for the company’s independent audit firm to attest to those assertions.

Congress has been repeatedly pressured to ease this requirement, which it did with the Jumpstart Our Business Startups (JOBS) Act, passed by Congress and signed by President Obama on April 5, 2012. The JOBS Act contained ...