E-Business: The Sarbanes Oxley Act (SOX)

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The Sarbanes Oxley Act (SOX) came about as a result of corporate scandals such as Enron and Worldcom. Critics say that it is burdensome for most medium sized business. Others say that it is working. All one has to do is pick up the Wall Street Journal on any given day and find irregularities: From Coca-Cola, to Tyson Chicken's CEO, to most all Big Accounting Firms. What say you?
America's response to Enron and other scandals was the Sarbanes-Oxley ACT (SOX). It is costing plenty—but is it working? (1) Did SOX go too far?
SOX requires publicly held companies to implement internal controls over their financial reporting, operations and assets, to evaluate the strengths and weaknesses of these internal controls in official documents filed with the SEC and to make regular disclosures concerning the viability of these controls and potential fraud or losses that may affect the company's financial position. Because most companies' financial reporting and operations depend heavily on information technology, and because many corporate assets now exist in the form of critical data, SOX has significant information security implications for companies governed by the law. The implementation, disclosure and ongoing evaluation of internal controls for SOX compliance are costly and complicated. IT plays a major role. As well, there are penalties for non-compliance, so compliance is necessary http://www.tripwire.com/promos/53/landing_pages/sox/index.cfm?djinn=2068.
I can understand the urgency that America felt in 2002 about the need for tighter controls, but perhaps SOX was premature and not the perfect solution mainly because it was reactionary. In fact, many do NOT agree in the extreme measures implicated in the Sarbanes-Oxley Act of 2002. They argue that most companies are indeed honest in their financial reporting, so SOX was not necessary. It was based on only a handful of company scandals (Enron, Worldcom, etc.) http://www.tripwire.com/promos/53/landing_pages/sox/index.cfm?djinn=2068.
Thus, SOX is very controversial. Was the SOX the solution to prevent furute corporate scandals or was it reactionary and not well planned out. Did it fail to project the far reaching effects e.g., security, financial, etc. and the great impact on both small and large companies? Was it worth it?
For the sake of argument, let's argue that SOX was reactionary, and that he law makers failed to forecast and consider future effects e.g., economy, small and large companies alike, security issues with IT, to name a few. The following author argues from this position, which you can draw on if you decide to take the same position.
Reactionary (excerpt)
THE Sarbanes-Oxley statute, which the United States enacted in an atmosphere of extraordinary agitation in 2002, is one of the most influential—and controversial—pieces of corporate legislation ever to have hit a statute book, writes one author. Its original aim, on the face of it, was modest: to improve the accountability of managers to shareholders, and hence to calm the raging crisis of confidence in American capitalism aroused by the scandals at Enron, WorldCom and other companies. The law's methods, however, were anything but modest, and its implications, for good or ill, are going to be far-reaching. (1)
Since the new accounting rules and regulatory infrastructure that goes with them are still bedding in, it is too soon for a definitive judgment. (That time may never come, in fact: academics are still arguing about the pros and cons of the Glass-Steagall act of 1933, a similarly momentous initiative.) It is early days for academic appraisals, but the ones that have been ventured so far tend to the view that costs will exceed benefits. Meanwhile, many of America's businessmen are deeply unhappy, and with reason: the initial costs of the new law have been bigger than expected. And it can be argued that, when it comes to repairing American corporate governance, the law anyway addresses symptoms more than causes. (1)
With time, no doubt, the law's balance of costs and benefits will improve significantly: some of the costs have been once-and-for-all. Right now, though, the balance looks pretty unfavourable. (1)
Alan Greenspan, chairman of the Federal Reserve, spoke up in defence of the statute this week. It was faint praise. He said he was surprised that a law which had been passed so rapidly had worked as well as it has—less of an endorsement than it first seemed, since laws dealing with issues as complex as these and passed ...