Sarbanes-Oxley Act of 2002 In the aftermath of the financial crisis of Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom, in an attempt to restore investor’s US Congress approved on July 2002 the Sarbanes Oxley Act (Slaughter 2009). Sarbanes-Oxley Act of 2002 brought with it a series of regulatory changes that will bring some significant changes to the financial market in the US and around the world as other nations soon enacted similar regulatory statues that were intended to serve the same purpose. Among the many regulatory requirements included in the SOX Act of 2002, below are probably the most important requirements that corporations are required to comply (Slaughter 2009):
Creation of the Public Company Accounting Oversight Board- a nonprofit corporation established by Congress to oversee the audits of public companies in an attempt to protect the interest of investors (PCAOB, 2015).
Increase in personal liability to auditors, executives and board members- the new law now requires that auditors, executives and board members are held liable if any of them are found guilty of committing any fraudulent activity.
Creation of Section 404- requires public companies to implement internal audit measures including internal control reports with their annual audit (Slaughter 2009).
Public accounting firms are now liable for their audits- Public accounting firms are now liable for reporting fraudulent or inaccurate information in their reports. For the corporations and companies that are required to comply with the Sarbanes-Oxley Act of 2002, the new law requirements mean added operational cost. The additional operating cost associated annual mandatory audits is high as these types of auditing services are very costly, not to mention the cost associated with having to establish and operate their own internal audit department as a way to ensure they are always in compliance. For accounting companies, the SOX act of 2002 also brought additional liability on their audit reports; these new requirements also would mean increases in their operating cost. Accounting companies would incur additional expenses in order to ensure the accuracy of their audits (Slaughter 2009). Following the financial market crisis of 2002, there is no doubt that legislation like the SOX act of 2002 would be necessary in order to prevent a similar financial disaster like this from happening again. In order to safeguard the interest of the public and investors a like a piece of legislation like the SOX act was needed. Unfortunately the enactment of the SOX act would come accompanied by additional cost to everyone. Although the intentions behind the new law are understandable it is important to mention that the enactment of the Sarbanes-Oxley Act of 2002 would also be accompanied by some negative side effects that would affect everyone. One example of the negative effects would be the fact that with the new additional audit