Question

Has Sarbanes-Oxley been effective in mitigating auditor complicity in management frauds? Why, or why not?

Answer 1

Sarbanes Oxley Act (SOX) has been enacted to restore confidence in the minds of investors, close the weak points in order to protect the investors. The act has been instrumental in protecting the policies of audit committees. It also made the internal management controls strong by making the directors personally responsible for their own decisions in terms of disclosure of financial statements. It has also imposed severe punishment for security fraud made by public companies in order to enforce greater regulation in the operations.

In case an officer of top management makes certification which is false and impracticable, he will be punished severely as per the act. It has also increased transparency in disclosure of financial statements, made new rules in the audit committees. Thus it reduces conflict of interest and also ensure that lead audit partner is rotated automatically in every five years. Hence we can presume that SOX has-been able to effectively mitigate auditor complicity in protecting against management frauds.