The Sarbanes-Oxley Effect Assignment Example | Topics and Well Written Essays - 1000 words

The Sarbanes-Oxley Effect - Assignment Example Major financial scandals which involved big companies such as Enron and Worldcom gave a strong impetus towards bringing in SOX act. Most of these scandals took place in companies which aggressively pursued all the common principles of accounting, hence scandals in such places were also a big set back for the market investors. Therefore a strong need was felt to bring in a stringent law that would not only keep a tab on financial reporting but also help in rebuilding investor's confidence. The main aim of SOX is to improve the accuracy and reliability of financial disclosures by corporates and to ensure integrity in their financial reporting. The act also imposes severe penalties and punishments for the CEOs and CFOs of the firms which fail to adhere to its requirements. There have been numerous studies and researches on this subject. Keeping in lieu with SOX intention of increasing financial accuracy, Cohen report of 2005 suggests a steady increase in financial accruals before SOX and a reversal in this trend post-SOX. Heflin and Hsu paper (2004) indicates a significant decline in the use of non-GAAP earning measures and a probability that disclosed earnings either exceed or meet expectations post SOX. Â