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Financial Implications of the Sarbanes Oxley Act

Discuss the financial impact of SOX and consider its effect on economic growth and enterprise.

As with the Enron, WorldCom, and other crises of the late 90s and early 2000s, the recent scandals and subsequent mortgage crisis were brought about by companies cheating on their balance sheets. Arguably, this has had a more far-reaching impact than the original scandals that resulted in the passage of Sarbanes-Oxley legislation. With this in mind, how effective is SOX?

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One of the problems that we face is that there are so many corporations in the U.S. As the public, we generally don't hear about a case until it becomes massive. The fraud or wrongdoing starts out small, within the company, and then continues to grow over time. This is the case with almost all major frauds, including Enron and WorldCom. By the time the fraud is discovered, it is then usually too late. The SOX is effective due to its oversight capabilities. The PCAOB and SEC typically work jointly in enforcement, even though it is the primary responsibility of the PCAOB. When companies submit financial statements to the SEC that have questionable material or that lack detail in an area, that area then goes under analysis/investigation by the SEC and PCAOB. The company then must respond to the SEC comment letter that is sent, explaining the details of the grey area on the financial statements. It is specifically in this ...

Solution Summary

This solution provides a comprehensive discussion in regards to the financial impact of SOX and economic growth and enterprise.