The Sarbanes-Oxley Act (SOX) is a piece of legislation that affects many corporations.?

. Do you think SOX is really necessary? Explain your answer.

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  • 10 years ago
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    I feel that it is necessary, yes.

    The legislation arose out of the scandals at Enron, Adelphia, Tyco Int'l and other companies. What those companies were doing was having the SAME people do both the auditing AND the accounting for them, as well as being employed by the company in other roles. It created a conflict of interest. On the one hand, those 'dual role' people were supposed to honestly audit the inventory and accounting procedures used. On the other hand, they were also employed by the company as 'management consultants'. That means that they had a vested interest in maximizing the company's profits on the financial records. They unfortunately chose to accomplish the latter by, basically, LYING !! They MADE UP numbers. The financial statements, as a result, were COMPLETELY FAKE.

    Result : Thousands of investors were duped. Many of them lost a LARGE percentage of their retirement plans. Those people were justifiably angry. Once these cases came to light (one after another), Congress could NOT ignore the situation. Hence, SOX. Now companies MUST use an independent and external auditing firm. No more "Be our accountant/auditor AND 'management consultant' at the same time."

    End result for investors : They are STARTING to regain trust that the financial statements of publicly-traded companies are, in fact, honest and accurate.

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