Question

Does the Sarbanes-Oxley Act work! How can we measure the effectiveness of regulations, laws, and legislation?

Answer 1

Sarbanes Oxley Act which was passed in the year 2002 works well now. Particularly,  Sarbanes Oxley Act requires the Chief Executive Officer of the Company (CEO) to hold personally responsible for any misstatements found on financial figures reported on company's financial statements at any cost.

It helps financial statements to reflect true and fair presentation and view of company's operations and financial position. As all stakeholders of the company, both internal as well as external, such as employees, shareholders, workers, suppliers, customers, banking partners, government, etc. depends on financial statements of the company for evaluating company's credit worthiness and decide whether to invest in the company or not, Sarbanes Oxley Act safeguards all the stakeholders who have interest on company's business operations in terms of safety on the amount invested or efforts invested by the stakeholders in the company.

Sarbanes Oxley Act also places responsibility on auditors of the company who audit financial statements prepared by the company and form opinion about true and fair presentation of financial figures reported on financial statements. That is, auditors who perform audit of the company shall not enter into any contract or carry out any non-audit activities with the same company. It reduces auditors' dependency on company and makes sure audit independence.

We can measure the effectiveness of regulations, laws, and legislation by anayzing the impact of such regulations, laws, and legislation at corporate markets. If the corporates have changed their behavior to accept rules laid down in regulations, laws, and legislation and act accordingly, we can say that the regulations, laws, and legislation are effectively implemented and monitored.