sarbanes-oxley

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</div><div>=</div><div><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act">https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act</a></div><div>
</div><div> Sarbanes–Oxley Act of 2002 (<a rel="nofollow" class="external text" href="http://legislink.org/us/pl-107-204" style="background-image: linear-gradient(transparent, transparent), url("data:image/svg+xml,%3Csvg xmlns=%22http://www.w3.org/2000/svg%22 width=%2212%22 height=%2212%22%3E %3Cpath fill=%22%23fff%22 stroke=%22%2336c%22 d=%22M1.5 4.518h5.982V10.5H1.5z%22/%3E %3Cpath fill=%22%2336c%22 d=%22M5.765 1H11v5.39L9.427 7.937l-1.31-1.31L5.393 9.35l-2.69-2.688 2.81-2.808L4.2 2.544z%22/%3E %3Cpath fill=%22%23fff%22 d=%22M9.995 2.004l.022 4.885L8.2 5.07 5.32 7.95 4.09 6.723l2.882-2.88-1.85-1.852z%22/%3E %3C/svg%3E"); background-position: right center; background-size: initial, initial; background-repeat: no-repeat, repeat; background-attachment: initial, initial; background-origin: initial, initial; background-clip: initial, initial; text-decoration-line: none; padding-right: 13px;">Pub.L. 107–204</a>, 116 <a href="https://en.wikipedia.org/wiki/United_States_Statutes_at_Large" title="United States Statutes at Large" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Stat.</a> <a rel="nofollow" class="external text" href="http://legislink.org/us/stat-116-745" style="background-image: linear-gradient(transparent, transparent), url("data:image/svg+xml,%3Csvg xmlns=%22http://www.w3.org/2000/svg%22 width=%2212%22 height=%2212%22%3E %3Cpath fill=%22%23fff%22 stroke=%22%2336c%22 d=%22M1.5 4.518h5.982V10.5H1.5z%22/%3E %3Cpath fill=%22%2336c%22 d=%22M5.765 1H11v5.39L9.427 7.937l-1.31-1.31L5.393 9.35l-2.69-2.688 2.81-2.808L4.2 2.544z%22/%3E %3Cpath fill=%22%23fff%22 d=%22M9.995 2.004l.022 4.885L8.2 5.07 5.32 7.95 4.09 6.723l2.882-2.88-1.85-1.852z%22/%3E %3C/svg%3E"); background-position: right center; background-size: initial, initial; background-repeat: no-repeat, repeat; background-attachment: initial, initial; background-origin: initial, initial; background-clip: initial, initial; text-decoration-line: none; padding-right: 13px;">745</a>, enacted July 30, 2002), also known as the "Public Company Accounting Reform and Investor Protection Act" (in the <a href="https://en.wikipedia.org/wiki/United_States_Senate" title="United States Senate" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Senate</a>) and "Corporate and Auditing Accountability, Responsibility, and Transparency Act" (in the <a href="https://en.wikipedia.org/wiki/United_States_House_of_Representatives" title="United States House of Representatives" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">House</a>) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is a <a href="https://en.wikipedia.org/wiki/United_States_federal_law" class="mw-redirect" title="United States federal law" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">United States federal law</a> that set new or expanded requirements for all U.S. <a href="https://en.wikipedia.org/wiki/Public_company" title="Public company" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">public company</a> boards, management and public accounting firms. A number of provisions of the Act also apply to privately held companies, such as the willful destruction of evidence to impede a federal investigation.[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration-line: none; background: none;">citation needed</a>]The bill, which contains eleven sections, was enacted as a reaction to a number of major <a href="https://en.wikipedia.org/wiki/Accounting_scandals" title="Accounting scandals" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">corporate and accounting scandals</a>, including <a href="https://en.wikipedia.org/wiki/Enron" title="Enron" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Enron</a> and <a href="https://en.wikipedia.org/wiki/WorldCom" class="mw-redirect" title="WorldCom" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">WorldCom</a>. The sections of the bill cover responsibilities of a public corporation's board of directors, adds criminal penalties for certain misconduct, and requires the <a href="https://en.wikipedia.org/wiki/United_States_Securities_and_Exchange_Commission" class="mw-redirect" title="United States Securities and Exchange Commission" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Securities and Exchange Commission</a> to create regulations to define how public corporations are to comply with the law.[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration-line: none; background: none;">citation needed</a>]
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</div><ul style="list-style-type: none; margin: 0.3em 0px; padding: 0px; list-style-image: none;"><li class="toclevel-1 tocsection-1" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Background" style="text-decoration-line: none; background: none;">1Background</a></li><li class="toclevel-1 tocsection-2" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Major_elements" style="text-decoration-line: none; background: none;">2Major elements</a></li><li class="toclevel-1 tocsection-3" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#History_and_context:events_contributing_to_the_adoption_of_Sarbanes%E2%80%93Oxley" style="text-decoration-line: none; background: none;">3History and context: events contributing to the adoption of Sarbanes–Oxley</a><ul style="list-style-type: none; margin: 0px 0px 0px 2em; padding: 0px; list-style-image: none;"><li class="toclevel-2 tocsection-4" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Timeline_and_passage_of_Sarbanes%E2%80%93Oxley" style="text-decoration-line: none; background: none;">3.1Timeline and passage of Sarbanes–Oxley</a></li></ul></li><li class="toclevel-1 tocsection-5" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Analyzing_the_cost-benefits_of_Sarbanes%E2%80%93Oxley" style="text-decoration-line: none; background: none;">4Analyzing the cost-benefits of Sarbanes–Oxley</a><ul style="list-style-type: none; margin: 0px 0px 0px 2em; padding: 0px; list-style-image: none;"><li class="toclevel-2 tocsection-6" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Compliance_costs" style="text-decoration-line: none; background: none;">4.1Compliance costs</a></li><li class="toclevel-2 tocsection-7" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Benefits_to_firms_and_investors" style="text-decoration-line: none; background: none;">4.2Benefits to firms and investors</a></li><li class="toclevel-2 tocsection-8" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Effects_on_exchange_listing_choice_of_non-US_companies" style="text-decoration-line: none; background: none;">4.3Effects on exchange listing choice of non-US companies</a></li></ul></li><li class="toclevel-1 tocsection-9" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Implementation_of_key_provisions" style="text-decoration-line: none; background: none;">5Implementation of key provisions</a><ul style="list-style-type: none; margin: 0px 0px 0px 2em; padding: 0px; list-style-image: none;"><li class="toclevel-2 tocsection-10" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_302:Disclosure_controls" style="text-decoration-line: none; background: none;">5.1Sarbanes–Oxley Section 302: Disclosure controls</a></li><li class="toclevel-2 tocsection-11" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_303:Improper_influence_on_conduct_of_audits" style="text-decoration-line: none; background: none;">5.2Sarbanes–Oxley Section 303: Improper influence on conduct of audits</a></li><li class="toclevel-2 tocsection-12" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_401:Disclosures_in_periodic_reports(Off-balance_sheet_items)" style="text-decoration-line: none; background: none;">5.3Sarbanes–Oxley Section 401: Disclosures in periodic reports (Off-balance sheet items)</a></li><li class="toclevel-2 tocsection-13" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_404:Assessment_of_internal_control" style="text-decoration-line: none; background: none;">5.4Sarbanes–Oxley Section 404: Assessment of internal control</a><ul style="list-style-type: none; margin: 0px 0px 0px 2em; padding: 0px; list-style-image: none;"><li class="toclevel-3 tocsection-14" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_404_and_smaller_public_companies" style="text-decoration-line: none; background: none;">5.4.1Sarbanes–Oxley 404 and smaller public companies</a></li></ul></li><li class="toclevel-2 tocsection-15" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_802:Criminal_penalties_for_influencing_US_Agency_investigation/proper_administration" style="text-decoration-line: none; background: none;">5.5Sarbanes–Oxley Section 802: Criminal penalties for influencing US Agency investigation/proper administration</a></li><li class="toclevel-2 tocsection-16" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_806:Civil_action_to_protect_against_retaliation_in_fraud_cases" style="text-decoration-line: none; background: none;">5.6Sarbanes–Oxley Section 806: Civil action to protect against retaliation in fraud cases</a></li><li class="toclevel-2 tocsection-17" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_906:Criminal_Penalties_for_CEO/CFO_financial_statement_certification" style="text-decoration-line: none; background: none;">5.7Sarbanes–Oxley Section 906: Criminal Penalties for CEO/CFO financial statement certification</a></li><li class="toclevel-2 tocsection-18" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes%E2%80%93Oxley_Section_1107:Criminal_penalties_for_retaliation_against_whistleblowers" style="text-decoration-line: none; background: none;">5.8Sarbanes–Oxley Section 1107: Criminal penalties for retaliation against whistleblowers</a></li></ul></li><li class="toclevel-1 tocsection-19" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Clawbacks_of_executive_compensation_for_misconduct" style="text-decoration-line: none; background: none;">6Clawbacks of executive compensation for misconduct</a></li><li class="toclevel-1 tocsection-20" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Criticism" style="text-decoration-line: none; background: none;">7Criticism</a></li><li class="toclevel-1 tocsection-21" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Praise" style="text-decoration-line: none; background: none;">8Praise</a></li><li class="toclevel-1 tocsection-22" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Legal_challenges" style="text-decoration-line: none; background: none;">9Legal challenges</a></li><li class="toclevel-1 tocsection-23" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes-Oxley_reporting_tools" style="text-decoration-line: none; background: none;">10Sarbanes-Oxley reporting tools</a></li><li class="toclevel-1 tocsection-24" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Legislative_information" style="text-decoration-line: none; background: none;">11Legislative information</a></li><li class="toclevel-1 tocsection-25" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Similar_laws_in_other_countries" style="text-decoration-line: none; background: none;">12Similar laws in other countries</a></li><li class="toclevel-1 tocsection-26" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#See_also" style="text-decoration-line: none; background: none;">13See also</a></li><li class="toclevel-1 tocsection-27" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#References" style="text-decoration-line: none; background: none;">14References</a></li><li class="toclevel-1 tocsection-28" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#External_links" style="text-decoration-line: none; background: none;">15External links</a></li></ul></div><h2 style="background: none rgb(255, 255, 255); font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom: 1px solid rgb(162, 169, 177); line-height: 1.3;">Background</h2>In 2002, Sarbanes–Oxley was named after bill sponsors U.S. Senator <a href="https://en.wikipedia.org/wiki/Paul_Sarbanes" title="Paul Sarbanes" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Paul Sarbanes</a> (<a href="https://en.wikipedia.org/wiki/Democratic_Party(United_States)" title="Democratic Party (United States)" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">D</a>-<a href="https://en.wikipedia.org/wiki/Maryland" title="Maryland" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">MD</a>) and U.S. Representative <a href="https://en.wikipedia.org/wiki/Michael_G.Oxley" class="mw-redirect" title="Michael G. Oxley" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Michael G. Oxley</a> (<a href="https://en.wikipedia.org/wiki/Republican_Party(United_States)" title="Republican Party (United States)" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">R</a>-<a href="https://en.wikipedia.org/wiki/Ohio" title="Ohio" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">OH</a>). As a result of SOX, top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Also, SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-1" style="text-decoration-line: none; background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial;">[1]</a>The bill, which contains eleven sections, was enacted as a reaction to a number of major <a href="https://en.wikipedia.org/wiki/Accounting_scandals" title="Accounting scandals" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">corporate and accounting scandals</a>, including those affecting <a href="https://en.wikipedia.org/wiki/Enron" title="Enron" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Enron</a>, <a href="https://en.wikipedia.org/wiki/Tyco_International" title="Tyco International" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Tyco International</a>, <a href="https://en.wikipedia.org/wiki/Adelphia_Communications_Corporation" title="Adelphia Communications Corporation" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Adelphia</a>, <a href="https://en.wikipedia.org/wiki/Peregrine_Systems" title="Peregrine Systems" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">Peregrine Systems</a>, and <a href="https://en.wikipedia.org/wiki/WorldCom" class="mw-redirect" title="WorldCom" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">WorldCom</a>. These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook public confidence in the US <a href="https://en.wikipedia.org/wiki/Capital_market" title="Capital market" style="background-image: none; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial; text-decoration-line: none;">securities markets</a>.[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration-line: none; background: none;">citation needed</a>]The act contains eleven titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the <a href="https://en.wikipedia.org/wiki/United_States_Securities_and_Exchange_Commission" class="mw-redirect" title="United States Securities and Exchange Commission" style="text-decoration-line: none; background: none;">Securities and Exchange Commission</a> (SEC) to implement rulings on requirements to comply with the law. <a href="https://en.wikipedia.org/wiki/Harvey_Pitt" title="Harvey Pitt" style="text-decoration-line: none; background: none;">Harvey Pitt</a>, the 26th chairman of the SEC, led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the <a href="https://en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board" title="Public Company Accounting Oversight Board" style="text-decoration-line: none; background: none;">Public Company Accounting Oversight Board</a>, or PCAOB, charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues such as <a href="https://en.wikipedia.org/wiki/Auditor" title="Auditor" style="text-decoration-line: none; background: none;">auditor</a> independence, <a href="https://en.wikipedia.org/wiki/Corporate_governance" title="Corporate governance" style="text-decoration-line: none; background: none;">corporate governance</a>, <a href="https://en.wikipedia.org/wiki/Internal_control" title="Internal control" style="text-decoration-line: none; background: none;">internal control</a> assessment, and enhanced financial disclosure. The nonprofit arm of <a href="https://en.wikipedia.org/wiki/Financial_Executives_International(FEI)" class="mw-redirect" title="Financial Executives International (FEI)" style="text-decoration-line: none; background: none;">Financial Executives International (FEI)</a>, Financial Executives Research Foundation (FERF), completed extensive research studies to help support the foundations of the act.[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration-line: none; background: none;">citation needed</a>]The act was approved in the <a href="https://en.wikipedia.org/wiki/United_States_House_of_Representatives" title="United States House of Representatives" style="text-decoration-line: none; background: none;">House</a> by a vote of <a rel="nofollow" class="external text" href="http://clerk.house.gov/evs/2002/roll348.xml" style="text-decoration-line: none; background: linear-gradient(transparent, transparent) right center no-repeat, url("data:image/svg+xml,%3Csvg xmlns=%22http://www.w3.org/2000/svg%22 width=%2212%22 height=%2212%22%3E %3Cpath fill=%22%23fff%22 stroke=%22%2336c%22 d=%22M1.5 4.518h5.982V10.5H1.5z%22/%3E %3Cpath fill=%22%2336c%22 d=%22M5.765 1H11v5.39L9.427 7.937l-1.31-1.31L5.393 9.35l-2.69-2.688 2.81-2.808L4.2 2.544z%22/%3E %3Cpath fill=%22%23fff%22 d=%22M9.995 2.004l.022 4.885L8.2 5.07 5.32 7.95 4.09 6.723l2.882-2.88-1.85-1.852z%22/%3E %3C/svg%3E"); padding-right: 13px;">423 in favor, 3 opposed, and 8 abstaining</a> and in the <a href="https://en.wikipedia.org/wiki/United_States_Senate" title="United States Senate" style="text-decoration-line: none; background: none;">Senate</a> with a vote of <a rel="nofollow" class="external text" href="https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=107&session=2&vote=00192" style="text-decoration-line: none; background: linear-gradient(transparent, transparent) right center no-repeat, url("data:image/svg+xml,%3Csvg xmlns=%22http://www.w3.org/2000/svg%22 width=%2212%22 height=%2212%22%3E %3Cpath fill=%22%23fff%22 stroke=%22%2336c%22 d=%22M1.5 4.518h5.982V10.5H1.5z%22/%3E %3Cpath fill=%22%2336c%22 d=%22M5.765 1H11v5.39L9.427 7.937l-1.31-1.31L5.393 9.35l-2.69-2.688 2.81-2.808L4.2 2.544z%22/%3E %3Cpath fill=%22%23fff%22 d=%22M9.995 2.004l.022 4.885L8.2 5.07 5.32 7.95 4.09 6.723l2.882-2.88-1.85-1.852z%22/%3E %3C/svg%3E"); padding-right: 13px;">99 in favor and 1 abstaining</a>. President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of <a href="https://en.wikipedia.org/wiki/Franklin_D.Roosevelt" title="Franklin D. Roosevelt" style="text-decoration-line: none; background: none;">Franklin D. Roosevelt</a>. The era of low standards and false profits is over; no boardroom in America is above or beyond the law."<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-Bumiller2002-2" style="text-decoration-line: none; background: none;">[2]</a>In response to the perception that stricter financial governance laws are needed, SOX-type regulations were subsequently enacted in Canada (2002),<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-3" style="text-decoration-line: none; background: none;">[3]</a> Germany (2002), South Africa (2002), France (2003), Australia (2004), India (2005), Japan (2006), Italy (2006), Israel, and Turkey. (See <a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Similar_laws_in_other_countries" style="text-decoration-line: none; background: none;">§ Similar laws in other countries</a> below.)[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration-line: none; background: none;">citation needed</a>]Debates continued as of 2007 over the perceived benefits and costs of SOX. Opponents of the bill have claimed it has reduced America's international competitive edge against foreign financial service providers because it has introduced an overly complex regulatory environment into US financial markets. A study commissioned by NYC Mayor <a href="https://en.wikipedia.org/wiki/Michael_Bloomberg" title="Michael Bloomberg" style="text-decoration-line: none; background: none;">Michael Bloomberg</a> and US Sen. <a href="https://en.wikipedia.org/wiki/Charles_Schumer" class="mw-redirect" title="Charles Schumer" style="text-decoration-line: none; background: none;">Charles Schumer</a>, (D-NY), cited this as one reason America's financial sector is losing market share to other financial centers worldwide.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-4" style="text-decoration-line: none; background: none;">[4]</a> Proponents of the measure said that SOX has been a "godsend" for improving the confidence of fund managers and other investors with regard to the veracity of corporate financial statements.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-5" style="text-decoration-line: none; background: none;">[5]</a>The 10th anniversary of SOX coincided with the passing of the <a href="https://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act" title="Jumpstart Our Business Startups Act" style="text-decoration-line: none; background: none;">Jumpstart Our Business Startups (JOBS) Act</a>, designed to give emerging companies an economic boost, and cutting back on a number of regulatory requirements.[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration-line: none; background: none;">citation needed</a>]<h2 style="background: none rgb(255, 255, 255); font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom: 1px solid rgb(162, 169, 177); line-height: 1.3;">Major elements[<a href="https://en.wikipedia.org/w/index.php?title=Sarbanes%E2%80%93Oxley_Act&action=edit&section=2" title="Edit section: Major elements" style="text-decoration-line: none; background: none;">edit</a>]</h2><ol style="margin: 0.3em 0px 0px 3.2em; padding: 0px; list-style-image: none; background-color: rgb(255, 255, 255);"><li style="margin-bottom: 0.1em;">Public Company Accounting Oversight Board (PCAOB)<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title I consists of nine sections and establishes the Public Company Accounting Oversight Board, to provide independent oversight of public accounting firms providing audit services ("auditors"). It also creates a central oversight board tasked with registering auditors, defining the specific processes and procedures for compliance audits, inspecting and policing conduct and quality control, and enforcing compliance with the specific mandates of SOX.</dd></dl></li><li style="margin-bottom: 0.1em;">Auditor Independence<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title II consists of 9 sections and establishes standards for external auditor independence, to limit conflicts of interest. It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.</dd></dl></li><li style="margin-bottom: 0.1em;">Corporate Responsibility<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company's "principal officers" (typically the <a href="https://en.wikipedia.org/wiki/Chief_Executive_Officer" class="mw-redirect" title="Chief Executive Officer" style="text-decoration-line: none; background: none;">Chief Executive Officer</a> and <a href="https://en.wikipedia.org/wiki/Chief_Financial_Officer" class="mw-redirect" title="Chief Financial Officer" style="text-decoration-line: none; background: none;">Chief Financial Officer</a>) certify and approve the integrity of their company financial reports quarterly.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-6" style="text-decoration-line: none; background: none;">[6]</a></dd></dl></li><li style="margin-bottom: 0.1em;">Enhanced Financial Disclosures<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title IV consists of nine sections. It describes enhanced reporting requirements for financial transactions, including <a href="https://en.wikipedia.org/wiki/Off-balance-sheet" title="Off-balance-sheet" style="text-decoration-line: none; background: none;">off-balance-sheet</a> transactions, pro-forma figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls. It also requires timely reporting of material changes in financial condition and specific enhanced reviews by the SEC or its agents of corporate reports.</dd></dl></li><li style="margin-bottom: 0.1em;">Analyst Conflicts of Interest<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title V consists of only one section, which includes measures designed to help restore investor confidence in the reporting of securities analysts. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest.</dd></dl></li><li style="margin-bottom: 0.1em;">Commission Resources and Authority<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title VI consists of four sections and defines practices to restore investor confidence in securities analysts. It also defines the SEC's authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker, advisor, or dealer.</dd></dl></li><li style="margin-bottom: 0.1em;">Studies and Reports<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title VII consists of five sections and requires the <a href="https://en.wikipedia.org/wiki/Comptroller_General_of_the_United_States" title="Comptroller General of the United States" style="text-decoration-line: none; background: none;">Comptroller General</a> and the SEC to perform various studies and report their findings. Studies and reports include the effects of consolidation of public accounting firms, the role of credit rating agencies in the operation of securities markets, securities violations, and enforcement actions, and whether investment banks assisted <a href="https://en.wikipedia.org/wiki/Enron" title="Enron" style="text-decoration-line: none; background: none;">Enron</a>, <a href="https://en.wikipedia.org/wiki/Global_Crossing" title="Global Crossing" style="text-decoration-line: none; background: none;">Global Crossing</a>, and others to manipulate earnings and obfuscate true financial conditions.</dd></dl></li><li style="margin-bottom: 0.1em;">Corporate and Criminal Fraud Accountability<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title VIII consists of seven sections and is also referred to as the "Corporate and Criminal Fraud Accountability Act of 2002". It describes specific criminal penalties for manipulation, destruction or alteration of financial records or other interference with investigations, while providing certain protections for whistle-blowers.</dd></dl></li><li style="margin-bottom: 0.1em;">White Collar Crime Penalty Enhancement<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title IX consists of six sections. This section is also called the "White Collar Crime Penalty Enhancement Act of 2002". This section increases the criminal penalties associated with <a href="https://en.wikipedia.org/wiki/White-collar_crime" title="White-collar crime" style="text-decoration-line: none; background: none;">white-collar crimes</a> and conspiracies. It recommends stronger sentencing guidelines and specifically adds failure to certify corporate financial reports as a criminal offense.</dd></dl></li><li style="margin-bottom: 0.1em;">Corporate Tax Returns<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title X consists of one section. Section 1001 states that the <a href="https://en.wikipedia.org/wiki/Chief_Executive_Officer" class="mw-redirect" title="Chief Executive Officer" style="text-decoration-line: none; background: none;">Chief Executive Officer</a> should sign the company tax return.</dd></dl></li><li style="margin-bottom: 0.1em;">Corporate Fraud Accountability<dl style="margin-top: 0.2em; margin-bottom: 0.5em;"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;">Title XI consists of seven sections. Section 1101 recommends a name for this title as "Corporate Fraud Accountability Act of 2002". It identifies corporate fraud and records tampering as criminal offenses and joins those offenses to specific penalties. It also revises sentencing guidelines and strengthens their penalties. This enables the SEC to resort to temporarily freezing transactions or payments that have been deemed "large" or "unusual".</dd></dl></li></ol><h2 style="background: none rgb(255, 255, 255); font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom: 1px solid rgb(162, 169, 177); line-height: 1.3;">History and context: events contributing to the adoption of Sarbanes–Oxley[<a href="https://en.wikipedia.org/w/index.php?title=Sarbanes%E2%80%93Oxley_Act&action=edit&section=3" title="Edit section: History and context: events contributing to the adoption of Sarbanes–Oxley" style="text-decoration-line: none; background: none;">edit</a>]</h2>A variety of complex factors created the conditions and culture in which a series of large corporate frauds occurred between 2000–2002. The spectacular, highly publicized frauds at <a href="https://en.wikipedia.org/wiki/Enron" title="Enron" style="text-decoration-line: none; background: none;">Enron</a>, <a href="https://en.wikipedia.org/wiki/WorldCom" class="mw-redirect" title="WorldCom" style="text-decoration-line: none; background: none;">WorldCom</a>, and <a href="https://en.wikipedia.org/wiki/Tyco_International#Corporate_scandal_of_2002" title="Tyco International" style="text-decoration-line: none; background: none;">Tyco</a> exposed significant problems with conflicts of interest and incentive compensation practices. The analysis of their complex and contentious root causes contributed to the passage of SOX in 2002.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-7" style="text-decoration-line: none; background: none;">[7]</a> In a 2004 interview, Senator Paul Sarbanes stated:<blockquote class="templatequote" style="overflow: hidden; margin: 1em 0px; padding: 0px 40px; background-color: rgb(255, 255, 255);">The Senate Banking Committee undertook a series of hearings on the problems in the markets that had led to a loss of hundreds and hundreds of billions, indeed trillions of dollars in market value. The hearings set out to lay the foundation for legislation. We scheduled 10 hearings over a six-week period, during which we brought in some of the best people in the country to testify...The hearings produced remarkable consensus on the nature of the problems: inadequate oversight of accountants, lack of auditor independence, weak corporate governance procedures, stock analysts' conflict of interests, inadequate disclosure provisions, and grossly inadequate funding of the Securities and Exchange Commission.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-8" style="text-decoration-line: none; background: none;">[8]</a></blockquote><ul style="margin: 0.3em 0px 0px 1.6em; padding: 0px; list-style-image: url("data:image/svg+xml,%3Csvg xmlns=%22http://www.w3.org/2000/svg%22 width=%225%22 height=%2213%22%3E %3Ccircle cx=%222.5%22 cy=%229.5%22 r=%222.5%22 fill=%22%2300528c%22/%3E %3C/svg%3E"); background-color: rgb(255, 255, 255);"><li style="margin-bottom: 0.1em;">Auditor conflicts of interest: Prior to SOX, auditing firms, the primary financial "watchdogs" for investors, were self-regulated. They also performed significant non-audit or consulting work for the companies they audited. Many of these consulting agreements were far more lucrative than the auditing engagement. This presented at least the appearance of a conflict of interest. For example, challenging the company's accounting approach might damage a client relationship, conceivably placing a significant consulting arrangement at risk, damaging the auditing firm's bottom line.</li><li style="margin-bottom: 0.1em;">Boardroom failures: Boards of Directors, specifically Audit Committees, are charged with establishing oversight mechanisms for financial reporting in U.S. corporations on the behalf of investors. These scandals identified Board members who either did not exercise their responsibilities or did not have the expertise to understand the complexities of the businesses. In many cases, Audit Committee members were not truly independent of management.</li><li style="margin-bottom: 0.1em;">Securities analysts' conflicts of interest: The roles of securities analysts, who make buy and sell recommendations on company stocks and bonds, and investment bankers, who help provide companies loans or handle mergers and acquisitions, provide opportunities for conflicts. Similar to the auditor conflict, issuing a buy or sell recommendation on a stock while providing lucrative investment banking services creates at least the appearance of a conflict of interest.</li><li style="margin-bottom: 0.1em;">Inadequate funding of the SEC: The SEC budget has steadily increased to nearly double the pre-SOX level.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-9" style="text-decoration-line: none; background: none;">[9]</a> In the interview cited above, Sarbanes indicated that enforcement and rule-making are more effective post-SOX.</li><li style="margin-bottom: 0.1em;">Banking practices: Lending to a firm sends signals to investors regarding the firm's risk. In the case of Enron, several major banks provided large loans to the company without understanding, or while ignoring, the risks of the company. Investors of these banks and their clients were hurt by such bad loans, resulting in large settlement payments by the banks. Others interpreted the willingness of banks to lend money to the company as an indication of its health and integrity, and were led to invest in Enron as a result. These investors were hurt as well.</li><li style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/Internet_bubble" class="mw-redirect" title="Internet bubble" style="text-decoration-line: none; background: none;">Internet bubble</a>: Investors had been stung in 2000 by the sharp declines in technology stocks and to a lesser extent, by declines in the overall market. Certain <a href="https://en.wikipedia.org/wiki/Mutual_fund" title="Mutual fund" style="text-decoration-line: none; background: none;">mutual fund</a> managers were alleged to have advocated the purchasing of particular technology stocks, while quietly selling them. The losses sustained also helped create a general anger among investors.</li><li style="margin-bottom: 0.1em;">Executive compensation: Stock option and bonus practices, combined with volatility in stock prices for even small earnings "misses," resulted in pressures to manage earnings.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-10" style="text-decoration-line: none; background: none;">[10]</a> Stock options were not treated as compensation expense by companies, encouraging this form of compensation. With a large stock-based bonus at risk, managers were pressured to meet their targets.</li></ul><h3 style="background: none rgb(255, 255, 255); margin: 0.3em 0px 0px; overflow: hidden; padding-top: 0.5em; padding-bottom: 0px; border-bottom: 0px; line-height: 1.6;">Timeline and passage of Sarbanes–Oxley[<a href="https://en.wikipedia.org/w/index.php?title=Sarbanes%E2%80%93Oxley_Act&action=edit&section=4" title="Edit section: Timeline and passage of Sarbanes–Oxley" style="text-decoration-line: none; background: none;">edit</a>]</h3><div class="thumb tright" style="clear: right; float: right; margin: 0.5em 0px 1.3em 1.4em; width: auto; background-color: rgb(255, 255, 255);"><div class="thumbinner" style="min-width: 100px; border: 1px solid rgb(200, 204, 209); padding: 3px; background-color: rgb(248, 249, 250); text-align: center; overflow: hidden; width: 222px;">
<div class="thumbcaption" style="border: 0px; line-height: 1.4em; padding: 3px; text-align: left;">Before the signing ceremony of the Sarbanes–Oxley Act, President <a href="https://en.wikipedia.org/wiki/George_W.Bush" title="George W. Bush" style="text-decoration-line: none; background: none;">George W. Bush</a> met with Senator <a href="https://en.wikipedia.org/wiki/Paul_Sarbanes" title="Paul Sarbanes" style="text-decoration-line: none; background: none;">Paul Sarbanes</a>, <a href="https://en.wikipedia.org/wiki/U.S.Secretary_of_Labor" class="mw-redirect" title="U.S. Secretary of Labor" style="text-decoration-line: none; background: none;">Secretary of Labor</a> <a href="https://en.wikipedia.org/wiki/Elaine_Chao" title="Elaine Chao" style="text-decoration-line: none; background: none;">Elaine Chao</a> and other dignitaries in the <a href="https://en.wikipedia.org/wiki/Blue_Room(White_House)" title="Blue Room (White House)" style="text-decoration-line: none; background: none;">Blue Room</a> at the <a href="https://en.wikipedia.org/wiki/White_House" title="White House" style="text-decoration-line: none; background: none;">White House</a> on July 30, 2002</div></div></div>The House passed Rep. Oxley's bill (H.R. 3763) on April 24, 2002, by a vote of 334 to 90. The House then referred the "Corporate and Auditing Accountability, Responsibility, and Transparency Act" or "CAARTA" to the <a href="https://en.wikipedia.org/wiki/United_States_Senate" title="United States Senate" style="text-decoration-line: none; background: none;">Senate</a> <a href="https://en.wikipedia.org/wiki/U.S.Senate_Committee_on_Banking,Housing,and_Urban_Affairs" class="mw-redirect" title="U.S. Senate Committee on Banking, Housing, and Urban Affairs" style="text-decoration-line: none; background: none;">Banking Committee</a> with the support of President <a href="https://en.wikipedia.org/wiki/George_W.Bush" title="George W. Bush" style="text-decoration-line: none; background: none;">George W. Bush</a> and the SEC. At the time, however, the Chairman of that Committee, Senator <a href="https://en.wikipedia.org/wiki/Paul_Sarbanes" title="Paul Sarbanes" style="text-decoration-line: none; background: none;">Paul Sarbanes</a> (D-MD), was preparing his own proposal, Senate Bill 2673.Senator Sarbanes's bill passed the Senate Banking Committee on June 18, 2002, by a vote of 17 to 4. On June 25, 2002, <a href="https://en.wikipedia.org/wiki/MCI_WorldCom" class="mw-redirect" title="MCI WorldCom" style="text-decoration-line: none; background: none;">WorldCom</a> revealed it had overstated its earnings by more than $3.8 billion during the past five <a href="https://en.wikipedia.org/wiki/Fiscal_year" title="Fiscal year" style="text-decoration-line: none; background: none;">quarters</a> (15 months), primarily by improperly accounting for its operating costs. Senator Sarbanes introduced Senate Bill 2673 to the full Senate that same day, and it passed 97–0 less than three weeks later on July 15, 2002.The House and the Senate formed a <a href="https://en.wikipedia.org/wiki/United_States_Congress_Conference_committee" class="mw-redirect" title="United States Congress Conference committee" style="text-decoration-line: none; background: none;">Conference Committee</a> to reconcile the differences between Sen. Sarbanes's bill (S. 2673) and Rep. Oxley's bill (H.R. 3763). The conference committee relied heavily on S. 2673 and "most changes made by the conference committee strengthened the prescriptions of S. 2673 or added new prescriptions."<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-11" style="text-decoration-line: none; background: none;">[11]</a>The Committee approved the final conference bill on July 24, 2002, and gave it the name "the Sarbanes–Oxley Act of 2002". The next day, both houses of <a href="https://en.wikipedia.org/wiki/United_States_Congress" title="United States Congress" style="text-decoration-line: none; background: none;">Congress</a> voted on it without change, producing an overwhelming margin of victory: 423 to 3 in the House;<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-12" style="text-decoration-line: none; background: none;">[12]</a> and 99 to 0 in the Senate.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-13" style="text-decoration-line: none; background: none;">[13]</a>On July 30, 2002, President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of <a href="https://en.wikipedia.org/wiki/Franklin_D._Roosevelt" title="Franklin D. Roosevelt" style="text-decoration-line: none; background: none;">Franklin D. Roosevelt</a>".<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-Bumiller2002-2" style="text-decoration-line: none; background: none;">[2]</a><h2 style="background: none rgb(255, 255, 255); font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom: 1px solid rgb(162, 169, 177); line-height: 1.3;">Analyzing the cost-benefits of Sarbanes–Oxley[<a href="https://en.wikipedia.org/w/index.php?title=Sarbanes%E2%80%93Oxley_Act&action=edit&section=5" title="Edit section: Analyzing the cost-benefits of Sarbanes–Oxley" style="text-decoration-line: none; background: none;">edit</a>]</h2>A significant body of academic research and opinion exists regarding the costs and benefits of SOX, with significant differences in conclusions.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-14" style="text-decoration-line: none; background: none;">[14]</a> This is due in part to the difficulty of isolating the impact of SOX from other variables affecting the stock market and corporate earnings.<a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-15" style="text-decoration-line: none; background: none;">[15]</a><a href="https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#cite_note-Shakespeare-16" style="text-decoration-line: none; background: none;">[16]</a> Section 404 of the act, which requires management and the external auditor to report on the adequacy of a company's internal control on financial reporting, is often singled out for analysis. Conclusions from several of these studies and related criticism are summarized below:<h3 style="background: none rgb(255, 255, 255); margin: 0.3em 0px 0px; overflow: hidden; padding-top: 0.5em; padding-bottom: 0px; border-bottom: 0px; line-height: 1.6;">Compliance costs</h3></div><div>...</div><div>
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</div><div>benke HNN</div><div>
</div><div>Recently Jeffrey Skilling, the former CEO the infamous Texas energy company Enron, was quietly released from prison and placed into a halfway house. To some, the news might offer a satisfying conclusion to the Enron story. The details of the company’s 2001 collapse, involving a massive accounting fraud, were so outlandish that Skilling’s prison term seemed as if justice had been served. After all, many Enron employees lost their retirements when the company went under. The problems with Enron, though, are bigger than the few people who went to jail as a result. The company’s collapse was ultimately enabled by a number of business trends that developed during the late twentieth century and which are still with us today. Indeed, Enron was a warning sign about the dangers of the very financial derivatives that threatened the entire global economy ten years ago.Skilling’s time at Enron reveals how the influence of Wall Street transformed U.S. business at the end of the twentieth century. In the late 1990s, Enron was celebrated in the business press for pioneering a new style of business. This success was largely attributed to Skilling, who had first come into contact with Enron when he was a consultant for McKinsey. As part of his work for the Texas energy company Skilling created a new business model for the natural gas pipeline company through the creative application of financial derivatives. At the time, the gas industry was in desperate need of a new approach to business. In the mid-1980s, natural gas deregulation ushered in sweeping changes for the industry. While in the past there had been strict rules that determined both the price of gas and how companies could operate, after deregulation, any company could contract with a pipeline to transport natural gas and, significantly, gas prices were no longer set by regulators. For gas pipeline companies such as Enron, this meant finding entirely new ways to operate. Skilling helped solve this problem by drawing inspiration from the innovations taking place on Wall Street. By offering a range of different derivatives deals, Enron’s customers were able to secure gas supplies at fixed and predictable prices. This, of course, was welcome news to industrial buyers of natural gas. Skilling’s early work for Enron was enormously successful. Now at Enron fulltime and convinced that this business model could be applied to a range of different industries, Skilling pushed the company into areas beyond natural gas. Offering a comparison to the art world, Skilling told interviewers for a business school case study that Enron’s “paint” and “brush stroke” were now being applied to a larger “canvas.” Indeed, that Enron had just introduced financial derivatives related to changes in the weather reveals just how big that “canvas” was that Skilling had in mind. The influence of Wall Street could also be felt inside the company. Skilling changed job titles inside the company to match those found inside large investment banks. As a glowing Fortune magazine feature noted, the new job titles implied that each employee was “part of a portfolio” which would allow Enron’s leadership to tinker with employee assignments just as bankers did with stocks and bonds. With Enron, the financialization of the American economy seemed to have reached its pinnacle.<div style="margin-bottom: 20px;">Ironically, Skilling’s early success with adopting banking practices also contained the seeds of Enron’s eventual ruin. Despite his belief that his business strategy could be applied to many different industries, Enron had trouble repeating its early success with derivatives. However, through the combination of complicated derivatives deals (often with strange names like “Nighthawk” and “Osprey”) and “mark-to-market” accounting – a method that was typically used for banking - Enron was able to hide losses on many of these new businesses. When the company did finally unravel at the end of 2001, there was widespread public outrage. Enron’s bankruptcy, then the largest in American history, meant a swift reversal of Skilling’s public image. No longer seen as a business visionary, Enron’s CEO now seemed to be nothing more than a con man. On Capitol Hill, an impulse towards reform followed Enron’s failure. Sarbanes-Oxley, the major piece of legislation that emerged from the Enron scandal, focused more on accounting transparency than systemic change. Michael Oxley, the late congressman who coauthored the law, worried that the Enron scandal sent the message that “somehow the game is rigged against the average investor” and that the government needed to act in order to “restore confidence in the markets.” When President Bush signed Sarbanes-Oxley into law, Washington largely declared the affair over. Prison sentences for many, including Skilling, were handed down over the next several years. This spectacle of handcuffed executives, as some have ruefully noted, was missing after the 2008 crash. However, neither congressional action nor criminal prosecution slowed the financialization of the American economy. On the contrary, the lack of any widespread economic disruption after Enron’s failure provided some with a false sense of comfort. While doing business with the doomed company, New York investment banks had taken out credit default swaps in case the company collapsed. To at least some policymakers, it seemed as though these new derivatives had worked. In particular, Alan Greenspan argued that Enron’s collapse was proof that “the combination of deregulation and innovation in the financial sector” had created a more fundamentally sound and secure economy. There was no need, in his estimation, to regulate credit default swaps because banks had been free to develop flexible strategies for managing risk. Greenspan’s conclusion is one of the more tragic ironies of Enron’s history. Indeed, the next scandal brought about by financial derivatives would have much bigger consequences. That a post-Enron crisis caused by financial derivatives threatened the entire global economy should be a stern warning that have we did not learn the broader lessons of the Houston company’s collapse. Stopping the next crisis will require more than punishing bad actors. Rather, what we need now is a sustained conversation about the power and influence finance has over much of the economy.</div><div></div></div></div><div>==</div>