Question

A large cross-section of CFO’s in the US believes they are now able to make day-to-day financial decisions faster because they have more reliable operational data because of the improved processes and controls. SOX is increasingly being deployed as part of a broader risk management approach that can, at least theoretically, deliver a significant return on investment (ROI). SOX can be tackled as part of a larger risk management strategy, which can generate value that would be ignored if an enterprise stuck to mere compliance. Based on what you have read so far, has SOX lives up to its expectations and is done to improve it?

Answer 1

SOX came into play after the 2002 scandals of Enron and WorldCom. These companies were involved in fancy accounting practices and caused investors to lose billions of dollars. This caused an all-time low confidence among the investors not only in Wall Street but across the world. SOX compliance became the norm and initially it caused corporations difficult times because it was found to be tedious. Not to mentions, just after the scandals, the corporations were trying to be overly compliant and thus had to put in extra efforts.

It’s been more than 15 years and SOX has come a long way. What was initially thought to be cumbersome is not long so. Corporations have become well-versed with the requirements and the investor confidences have certainly returned. It does not mean that there have not been any instances of fraudulent accounting practices. However, anything in the scale of Enron or WorldCom is difficult with SOX being present.

Has SOX been successful? The answer to this question depends on what do we perceive to be the objective of SOX. If we think that it is to provide a safe and transparent accounting practice, then its success can be debated. However, if we think its objective to reinstall investor confidence then it has been successful.