The Benefits and Challenges of Sarbanes-Oxley Compliance

It’s no secret. Government compliance comes with a major price tag and the cost of complying with the Sarbanes-Oxley Act of 2002 (SOX) tops the list. In fact, a study by AMR Research predicts companies will shell out over $6 billion to comply with SOX this year.

Enacted in July 2002 in the aftermath of accounting scandals at Enron, WorldCom and the subsequent collapse of auditor Arthur Andersen, the authors of SOX hoped to renew investor trust in corporate America by addressing several areas proven vulnerable by the likes of Enron. The law created the Public Company Accounting Oversight Board (PCAOB), which is responsible for auditing standards, the regulation of auditors, and quality control in audits of publicly held companies—largely stripping the accounting profession of its historic self-regulatory status. CEOs and CFOs must now sign off personally on the accuracy of their company’s financial statements. Steps to avoid conflicts of interest between companies, stock analysts, auditors, and investment bankers were taken, and misdeeds now mean stiffer penalties.

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