Essay: Drawbacks of Sarbanes Oxley Act

Sample Essay

An in-depth analysis of the Sarbanes-Oxley Act provides in complying with the SOX, the companies have to store a large amount of information and data regarding their financials. This increase in the information that needs to be recorded and stored for evaluation and auditing purposes makes the accounting and the auditing of information very difficult and tiresome. As a result due to the implementation of the Sarbanes-Oxley Act and the regulations which ensued in it, it is very easy for companies to hide fraudulent activities in large amounts of stored data. “Shaun Fothergill, security strategist and compliance expert at Computer Associates International, believes that despite problems settling in, Sarbanes-Oxley will improve matters for businesses when implemented effectively. However, he warned that compliance may start to provoke even more instances of fraud.” (Sturgeon, 2005)

A research conducted by Vidhi Chhaochharia and Yaniv Grinstein highlights the effect of the Sarbanes-Oxley Act in terms of the discrepancies amongst the smaller and the larger firms in the public sectors. The research concludes that “firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. We also find variation in the response across firm size. Large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns, suggesting that some provisions are detrimental to small firms.” (Chhaochharia & Yaniv, 2007)

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