There is a general pattern seen in the world of finance: giant corporate fraud or scandal, resulting government investigation that inevitably is unable to prosecute those responsible, followed by lengthy governmental legislation attempting to prevent the fraud/scandal from ever happening again. In the early 2000’s this pattern played out in the form of multiple scandals such as Enron and WorldCom with resulting legislation in the form of the Sarbanes-Oxley Act of 2002.
SOX is said to be the most sweeping piece of legislature regarding financial reform since FDR’s Securities Act of 1933 and Securities Exchange Act of 1934. It attempted to restore confidence and transparency to companies’ financial statements and therefor the market as a whole. SOX was for the most part able to accomplish this goal, but not without substantial costs to public companies and the market. Compliance costs were grossly underestimated by Congress and the regulatory agencies leaving public companies with no choice but to take the hit. Additionally, there have been substantial declines in the United States’ competitive edge in the global capital markets.
This report is concluded with three suggestions to help accomplish several goals of SOX that have not yet been achieved as well as an overall answer to the question of whether or not the costs of SOX outweigh its benefits.