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The Sarbanes-Oxley (SOX) Act of 2002 was passed by the U.S. Congress primarily for the purpose of protecting the investors and the public from fraudulent actions and inaccurate financial reporting by corporations. The legislation addressed a number of aspects ranging from securities regulation, financial reporting, conflicts of interest, oversight of accounting, and corporate ethics, as well as establishing criminal and civil penalties for violations. One of the key provisions in Section 802 establishes foundational rules to account recordkeeping. This addresses the destruction and falsification of records, the retention period for such information, and the type of records and communication that needs to be stored. Sections 302 and 906, which establish disclosure procedures and controls in accordance with SEC rules as well as requiring CEOs to certify all financial statements meet SEC requirements, allow to create accountability in corporate accounting (Wagner & Dittmar, 2006).
SOX standards are comprehensive but can be potentially improved in several areas, particularly those that have become relevant in the almost 20 years since its enactment. Cybersecurity and other computing accounting services need to be encompassed in the law to provide guidelines and control in the information technology field. Other regulations that need to be potentially improved are conflicts of interest, such as ensuring auditors are rotated more effectively and any federal regulators are appointed through appropriate vetting procedures as not to violate the doctrine of separation. Aspects that may be considered overregulation on behalf of the SOX Act are the corporate governance regulations and requirements for internal audits, which create multi-billion costs for companies. It is a one-size-fits-all approach that attempts to standardize corporate structure and processes. While this has some benefits, it is also lacking flexibility and potentially stifling growth. Such as Section 404, which has good intentions but also has a number of adverse effects and impracticalities, which has led to a postponement of its implementation indefinitely. The institution of internal auditing and control mechanisms are costly, and the primary burden disproportionately fell on smaller companies (Griffith, 2014).
References
Griffith, S. (2014).The Sarbanes-Oxley Act: A dozen years later, taking stock. Web.
Wagner, S. & Dittmar, L. (2006). The unexpected benefits of Sarbanes-Oxley.Harvard Business Review. Web.
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