The Cost of Complying with Sarbanes-Oxley Act Section 404 Research Paper

The Cost of Complying with Sarbanes-Oxley Act Section 404 - Research Paper Example â€Å"Sarbanes-Oxley Act†, otherwise known as â€Å"SOX†, is the America’s federal law which sets latest or improved standards for all U.S.A based management and public accounting firms. (Coffee, 2006). In 2002, SOX was introduced in retort to frequent occurrence of major accounting and corporate scandals, including scandals such as Tyco International and Enron. (Coffee, 2006). The main purpose of the â€Å"Sarbanes-Oxley Act† is to regain the confidence in the capital market by enforcing mandatory standards and rules for companies. The scandal involving Enron Corporation was one of the main drivers behind the enactment of Sarbanes-Oxley Act. CEO, Kenneth L. Lay, was responsible for hiding billions of dollars in debt from failed deals and projects. â€Å"Nearly $11 billion were lost by Investors when stock quotes of Enron, which remained at the top of $90 per stock during the middle of 2000, plunged to less than $1 at the close of November 2001.† (Benston, 2006). In December 2001, Enron filed for bankruptcy and Lay was found to be involved in one of the biggest accounting fraud crimes in U.S. history. As a result of scandals like Enron and the public bankruptcy of such well-recognized businesses, US Congress passed the â€Å"Sarbanes-Oxley Act of 2002.† (Coffee, 2006). This bill made it mandatory for all public companies to have internal financial auditing controls and an external auditor. Sarbanes-Oxley Act amplified consequences for destructing, changing, or cooking up accounting records during investigations conducted by Federal agencies or for trying to deceive stockholders. The accountability of auditing firms has been increased by SOX so as to make them to remain unprejudiced and autonomous of their clients. (Coffee, 2006). Sarbanes-Oxley Act demands that the â€Å"Securities and Exchange Commission (SEC)† to put into practice rulings on needs to adhere