The Impact of Sarbanes-Oxley Legislation on the Accounting Industry

Strategic Insights -

The passage of Sarbanes-Oxley legislation in 2002 marked a significant shift in the accounting industry, ushering in a new era of rules and federal oversight. The legislation was passed in response to several high-profile bookkeeping scandals, including the Arthur Andersen document-shredding case. To understand the impact of this legislation, we turn to Lynn Turner, a former chief accountant at the Securities and Exchange Commission. Turner explains that the Sarbanes-Oxley law had a direct impact on the accounting profession and led to the creation of the Public Companies Accounting Oversight Board, which oversees the audit firms. The law also increased penalties for those who shred documents or violate security laws and improved the independence of corporate boards and auditors.

Key Takeaways:

  • The Sarbanes-Oxley legislation was passed by Congress in the summer of 2002 and signed into law by President Bush.
  • The law created the Public Companies Accounting Oversight Board to oversee the audit firms and improve the independence of corporate boards and auditors.
  • The legislation increased penalties for those who shred documents or violate security laws, holding management accountable for financial reports filed with the SEC.
  • The law has led to better audits, reducing errors and improving investor confidence.
  • The Public Companies Accounting Oversight Board has primary enforcement responsibility, while the SEC plays a major role in oversight.
  • The law affects not only the corporate world but also ordinary Americans who invest in the capital markets through their 401(k)s or IRA accounts.
  • The loss of $9 trillion in market value and the impacts of the Enron, WorldCom, and Qwest scandals have resulted in greater confidence in financial reports and better stock information.

Statistics:

  • 90 million Americans have invested in the capital markets through their 401(k)s or IRA accounts.
  • $9 trillion was lost in market value as a result of the Enron, WorldCom, and Qwest scandals.
  • The Sarbanes-Oxley legislation was passed in the summer of 2002.
  • The law created the Public Companies Accounting Oversight Board to oversee the audit firms.

Sources:

  • Congressional hearing transcript (no date provided)
  • Lynn Turner, former chief accountant at the Securities and Exchange Commission, interview with Michele Norris on NPR, broadcast date not provided.