Essay: The Effectiveness of the Sarbanes-Oxley Act of 2002

Sample Essay

Introduction

The purpose of this research is to determine the effectiveness of the Sarbanes-Oxley Act (SOX) in detecting fraudulent activities during a company’s audit process. Kabala (2005) points out relevance to fraud auditing which states that the majority of fraud occurrences are either not reported or not discovered.  He placed fraud into three categories. According to him, the first grouped composed of fraud that has been detected and known by the public. The second group is a fraud that has been detected, but the concerned personal has chosen to hide it for various reasons and so not know by the public. The last group is a fraud that has been detected and is known by the public.

Hellmann (2005) gives estimation that about 25% of fraud is group one fraud, 42% is group two fraud, and 33% is group three fraud.  Hence, the detection of  financial fraud can be detected through the audit process. This is because auditing is more concerned with the transactions that compose the balance in account, and not just the balance itself. Hellman (2005) claims that minus the fraud auditing, “internal controls are not effective, especially when two or more perpetrators are involved” (p. 8).

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