What are some of the major factors over the past 30 years that have led to increased auditing standards such as the Sarbanes-Oxley Act of 2002?

The collapse of corporate giants such as WorldCom and Enron due to fraudulent accounting practices, are two of the largest eye-opening events over the past 30 years which has led to increased auditing standards such as the Sarbanes-Oxley Act of 2002. These publically traded companies, along with several others including Waste Management, Tyco International, and Adelphia, experienced dramatic declines in their stock value when the word got out that their accounting practices were not in accordance with generally accepted accounting principles (GAAP). The collapse of each of these corporations and their subsidiaries left thousands of stakeholders in a dire predicament. From shareholders who witnessed their stock value fall lower than the value of the paper their shares were printed on, to employees who were left without a job, benefits, retirement funding, etc., the public outcry for more regulation forced lawmakers to tighten accounting practices across the board.

In addition to setting new standards for how all publically traded companies report earnings, SOX contains 11 sections that range from guidelines for corporate board member’s responsibilities to the judicial punishment associated with scandalous reporting. SOX had helped to restore public confidence in investing in publically traded companies prior to the recent banking and credit market failures, but as we all know, public confidence in the NYSE at the moment is grim at best.