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Introduction:
In 2002, SEC formulated the Sarbanes-Oxley Act in response to the wave of scandals thatmarred the reputation of
corporateAmerica, costing nearly $40 billion on GDP of the country, in terms of its effect on stock prices.Accounting and
governance related frauds of Enron, Tyco,Aldelphia andWorldComled to loss of shareholders and employees’ trust in top
management.TheSarbanes-OxleyAct intended to improve transparency,management accountability and bring in accuracy
in corporate disclosures and help restore investors’ confidence.
The federal legislationmandated disclosure of company’s state-of-affairs by all public companies to its shareholders. In
addition, the CEOwas to certify the details revealed to the shareholders, by signing and certifying the financial statements.
TheAct required due diligence in the disclosure of the required information to the investorswhile holding the topmanagement
liable for irregularities. Also, public companies were to regularly change their auditors. All these stipulations and their
compliance raised the cost of auditing for the companies, in terms of the auditing fees and the cost of personnel involved.
Further,more costs came to light for the country’s economy as public companieswere delisting fromNYSE and other stock
exchanges of the country to escape theUS corporate governance regulation.On the other hand, analysts believed that the
benefits the law aimed atwould be realized only in the long-term.Meanwhile, the scandals continued to erupt even after the
Act came into effect, as some believed fraudsters would always find unscrupulous ways to escape.
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