The significance of the US Sarbanes- Oxley Act

Being enacted on July 30, 2002, Sarbanes-Oxley, commonly Sarbox or SOX, is a United States federal law. It was passed to react to corporate and accounting scandals such as Enron, WorldCom, and Tyco International. This law sets new standards for all US public company boards, management and accounting firms.

The most important point of the law is creating Public Company Accounting Oversight Board (PCAOB). This agency has to supervise, control, inspect and discipline accounting firms that audit public companies. Besides, it also establishes standards and rules for operation of accounting firms. For instance, the act prohibits auditing companies from providing non-audit services (e.g., consulting) for the same clients.

The act also requires carrying out greater responsibility for decisions in every corporation and providing leadership based on ethical principles. For example, top managers are required to certify the completeness and accuracy of financial reports; senior executives also have to take individual responsibility for companies’ financial statements. Moreover, SOX also provides certain protections for “whistle-blowers”. These persons may be anyone such as employees who report illegal activities to law enforcement officer. According to Section 1107, persons who took any action harmful to any person “shall be fined under this title, imprisoned not more than 10 years, or both”.

In these days, violations of the law have increased. New laws and regulations have been passed to prevent unethical decisions. The most significant of them are the Sarbanes-Oxley Act (SOX) and the Federal Sentencing Guidelines for Organizations (FSGO). With low cost of compliance, these rules bring a lot of benefits to firms and stakeholders. According to a survey of Finance Executives International (FEI), for 168 companies with average revenues of $4.7 billion, compliance costs were $1.7 million (0.036% of revenue) in 2007. Main benefits of Sarbox are greater accountability of top managers, greater penalties for senior managers, renewed investor confidence, and whistle-blower protection. If every corporation complies with these laws, ethical behavior will be certainly generated.

In Vietnam, some laws and regulations are issued. They, however, are not sufficient. In the future, I think we should set up laws to prohibit corporations from misconducts, and encourage companies to avoid unethical behaviors. Besides, passed laws need to be modified, and complemented to appropriate to changing business environment.