Citation
Sarbanes-Oxley Act of 2002
TL;DR
Prohibited accounting firms from providing consulting services to audit clients
The Sarbanes-Oxley Act represents the regulatory response to Arthur Andersen's collapse and the Enron scandal. It codified structural separations to prevent third-party enforcer conflicts of interest and created the PCAOB (Public Company Accounting Oversight Board) to provide ongoing oversight of auditors.
The legislation demonstrates how costly punishment of watchdogs (Andersen's organizational death) creates not just deterrence but systemic reform. While SOX compliance costs $3M+ annually per public company, investor confidence in audited statements increased - the cost created value by restoring trust in third-party enforcement.
Key Findings from Congress (2002)
- Prohibited accounting firms from providing consulting services to audit clients
- Created criminal penalties for document destruction
- Required CEO/CFO certification of financial statements
- Established PCAOB to oversee auditors
- Compliance costs ~$3M annually per public company but restored investor confidence