The Goals and Promise of the Sarbanes-Oxley Act

Bibliographic Data

ID4029059
AuthorsJohn C Coates (Harvard Law School, Cambridge, Massachusetts.), John Coates (Harvard University Press, corresponding author)
Year2007
Volume21
Issue1
Pages91-116
Publication date2007-01-01
Open AccessYes
TypeARTICLE
VenueThe Journal of Economic Perspectives (JOURNAL)
Journal identifiersISSN: 0895-3309 • E-ISSN: 1944-7965
PublisherAmerican Economic Association (PUBLISHER • US)
DOI10.1257/jep.21.1.91
OpenAlexW2089753078
LanguageEN
Citations received14
References cited13

The primary goal of the SarbanesOxley Act was to fix auditing of U.S. public companies, consistent with its full, official name: the Public Company Accounting Reform and Investor Protection Act of 2002. By consensus, auditing had been working poorly, and increasingly so. The most important, and most promising, part of SarbanesOxley was the creation of a unique, quasi-public institution to oversee and regulate auditing, the Public Company Accounting Oversight Board (PCAOB). In controversial section 404, the law also created new disclosure-based incentives for firms to spend money on internal controls, above increases that would have occurred after the corporate scandals of the early 2000s. In exchange for these higher costs, which have already fallen substantially, SarbanesOxley promises a variety of long-term benefits. Investors will face a lower risk of losses from fraud and theft, and benefit from more reliable financial reporting, greater transparency, and accountability. Public companies will pay a lower cost of capital, and the economy will benefit because of a better allocation of resources and faster growth. SarbanesOxley remains a work in progress -- section 404 in particular was implemented too aggressively - but reformers should push for continued improvements in its implementation, by PCAOB, rather than for repeal of the legislation itself

Accountability · Audit · Business · Economics · Incentive · Legislation · Political science · Repeal · Auditing, Earnings Management, Governance · Law · Law, Economics, and Judicial Systems · Legal and Constitutional Studies · Accounting · Finance

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