Abstract:
In response to all of the recent accounting failures, Congress passed the SarbanesOxley Act. Its objective is to prevent the same types of accounting failures and fraudulent activity from occurring in the future. However, the effectiveness of SarbanesOxley is largely uncertain. In my opinion, it will not be very effective. Penalties to deter corporate fraud existed prior to the legislation, and they have not worked very well. Studies conducted by the United States Bureau of Justice confirm this. One of SarbanesOxley's main approaches to correcting the problem of corporate fraud is to increase the existing penalties. HealthSouth, the first firm to be charged under Sarbanes-Oxley, proves that the increase in penalties will not serve as an effective deterrent for corporate crime. In order to support this conclusion, I give a brief analysis of the major provisions of Sarbanes-Oxley and then discuss a couple of the major accounting failures that have recently occurred. In addition, statistics on fraud crime and the success rates of parole are also included.
