“What’s Sarbanes-Oxley supposed to do?” Asked a participant at a recent session.
Good question, I thought.
Congress passed Sarbanes-Oxley, SarBox or SOX (because accountants must have more than one name for the same thing) in 2002 in response to a wave of corporate accounting scandals like those at Enron, WorldCom and Adelphia. Among other provisions, it mandated executives certify publicly disclosed financials as accurate representations of the company’s financial position/health. Punishment for breaking the law included jail time.
The fallout from 2007-2008s home-mortgage meltdown has provided an ongoing case study for how Sarbanes-Oxley has been utilized. In retrospect, many firms had assets on their balance sheets that were worth substantially less than their reported values. In fact, the SEC cited fraud/concealment of material information from investors when it announced the record fines/settlement with Angelo Mozilo, former CEO of Countrywide.
“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite” — http://www.sec.gov/news/press/2010/2010-197.htm
The SEC didn’t prosecute Mozilo under Sarbanes-Oxley. As far as I know, no one associated with the home mortgage debacle has been prosecuted under Sarbanes-Oxley nor served any time due to deliberately misleading investors.
That, alas, takes us back to the participants question: “what is Sarbanes-Oxley supposed to do?”