Sarbanes-Oxley and the Independent Audit: A Misguided Democratic Travesty


After exploring the blogosphere for the first time, I came across this article about independent audits. As an accounting major soon to be working for an accounting firm, I was intrigued by the authors viewpoint. While the travesty of situations like that of Enron and Worldcom certainly rocked the financial world, I do not believe the repercussions were at all effective– Specifically the Sarbanes Oxley Corporate Reform act of 2002, or SOX. SOX’s overarching goal was to boost shareholder confidence in their investments and set new standards for the financial reporting of publicly traded companies. The author seemed to believe that while SOX was a good first step, it “did not take measures far enough.” Personally, I could not disagree more.

Sarbanes Oxley was little more than a full employment act for the accounting and legal industries that did very little to prevent fraud or misrepresentation. Even the smallest publicly traded companies such as pharmaceuticals/drug discovery and tech firms looking to raise capital through an IPO would be immediately exposed to minimum seven figure costs to set up systems to become SOX compliant. It was and is a democratic travesty that is nothing more than a regulatory hit that raises cost of doing business, conceived into being by socialist democrat and career politician Paul Sarbanes. In fact, upon its inception, many publicly traded firms left the market and were privatized. It hurts small businesses looking to go public to raise capital, and is largely inefficient at its main goal of preventing fraud.

While I do agree that legislation and regulation is needed to address the common issues plaguing corporate America, I think some of the most effective ways of doing so are also the simplest. Some of SOX’s most effective requirements, such as maintaining a certain level of independence on a company’s Board of Directors and Audit committees are also the least expensive. While regulation is needed, the ends must justify the means so that companies aren’t forced to spend absurd amounts of their capital to remain publicly traded.

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