Corporate America and Sarbanes-Oxley Act: The Costs vs Benefits



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Code : GOV0018

Year :
2005

Industry : Business Law, Governance and Ethics

Region : USA

Teaching Note: Not Available

Structured Assignment : Not Available

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Abstract: In response to the wave of scandals that damaged the reputation of corporate America, in 2002, the Securities Exchange Commission (SEC) formulated the Sarbanes-Oxley Act. The Sarbanes-Oxley Act intended to improve transparency, management accountability and bring in accuracy in corporate disclosures and help restore investors' confidence. Analysts believed that the benefits of the law would be realised in the long run and would help corporate America improve its tarnished image. However, companies had to bear huge compliance-related costs of the act. To bypass the act and avoid these huge costs they began to de-list from the New York Stock Exchange (NYSE) and other US stock exchanges. The case details the accounting irregularities and frauds that have gradually come to light since 2001.

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Pedagogical Objectives:

  • To understand the conflict of interest between accounting and consulting professions, considered to be one of the reasons for such failures in corporate governance
  • To discuss the ability of Sarbanes-Oxley Act in checking frauds and preventing the top executives from siphoning off huge amounts at the cost of shareholders and employees' interest.

    Keywords :Corporate Governance Case Study, Sarbanes-Oxley act, Accounting scandals, Enron debacle, Corporate governance problems, Image of corporate America, Corporate disclosures, Compliance-related costs, Delisting from stock exchanges, Chief Executive Officer pay, Retaining investor confidence, Benefits to shareholders

    Contents :
    Corporate America and the Auditing Industry
    Sarbanes-Oxley Act
    Costs vs. Benefits
    Public Company Accounting Oversight Board


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