The Sarbanes‐Oxley Act of 2002: a five‐year retrospective

Abstract

Purpose

The Sarbanes‐Oxley Act has celebrated its fifth anniversary. This paper aims to discuss the effectiveness and usefulness to the accounting profession and the investing community of the reforms set forth in the Act.

Design/methodology/approach

Various components of the Sarbanes‐Oxley Act of 2002 are explored in detail, predominantly those dealing with corporate governance and internal controls. Discussions with practicing certified public accountants along with opinions from other professionals in the investing community are used to gain insight into the Act's effects on those who work its provisions on a daily basis.

Findings

Differing opinions exist as to the effects of the reforms on the accounting profession, financial reporting, capital markets, and ultimately, investor confidence. Some experts feel the reforms are helping to restore investor confidence in issuer's financial statements while others feel the cost of compliance with the Act's reforms exceed the benefits.

Practical Implications

Implementation of the Act's reforms are not without controversy. This paper highlights the need for investors to understand the nature and issues surrounding the reforms to help increase investor confidence in the financial markets.

Originality/value

This paper reviews the origins of the Act's reforms and their intended purpose. A better understanding of the reforms and discussions with experts in the business community allows investors to determine the effectiveness and usefulness of the Act.

Citation

Petra, S.T. and Loukatos, G. (2009), "The Sarbanes‐Oxley Act of 2002: a five‐year retrospective", Corporate Governance, Vol. 9 No. 2, pp. 120-132. https://doi.org/10.1108/14720700910946578