Question

Do you think that investors are getting concerned that SOX has gotten stale and is not as much of a threat for bad behavior? Why or why not?

Answer 1

THE ACCOUNTING PROFESSIONALS interviewed for this article were positive about some Sarbanes-Oxley requirements, saying management’s reporting on and the external auditor’s attestation to the internal controls are good ideas. They advocated audit committees’ hiring CPAs because it could reduce the pressure on audit fees and lead to better-quality audits. All agreed that having top management certify it had reviewed the quarterly and annual reports would force it to become more engaged in the financial reporting process. All believed the legislation would have a positive impact, but would not be a panacea.

Some critics have argued, however, that SOX whistleblower protections are not strong enough to incentivize many employees to blow the whistle. As seen in the Enron scandal, employees risk retaliation when raising concerns and may be terminated for their efforts. One scholar notes that after being terminated, whistleblowers may not have the financial means to fight against dishonest employers. As a result, many potential whistleblowers may remain silent because the risk of speaking up may not be worth the risk.

Who must comply with this law

Sarbanes-Oxley affects all public companies in the United States by requiring them to follow the provisions of the 11 sections of the act. In addition to publicly-traded companies, along with their wholly-owned subsidiaries and foreign companies that are publicly traded and do business in the U.S., Sarbanes-Oxley also regulates accounting firms that perform audits for any U.S. public company.

Private companies and charities aren’t required to follow all of the provisions of the law. However, private companies getting ready to go public with an IPO need to be prepared to comply with the regulations in Sarbanes-Oxley. The law also provides some exceptions for non-profit companies.