Corporate scandals led to auditing overhaul
Born from corporate scandals like Enron and WorldCom, the Sarbanes-Oxley Act overhauled auditing to curb fraud, restore investor trust, and reshape modern corporate regulation.
The Sarbanes-Oxley Act (SOX) was enacted in 2002 after massive corporate accounting scandals, like Enron's $60 billion collapse and WorldCom's $3.8 billion fraud, shattered public trust. These events exposed deep flaws in corporate governance and auditing. SOX introduced sweeping reforms, establishing the Public Company Accounting Oversight Board (PCAOB) to oversee audits and requiring CEOs to personally certify financial statements. This aimed to prevent creative accounting and restore investor confidence. While SOX significantly reduced fraud, its compliance costs for large firms average over $2.3 million annually, sparking ongoing debates about regulatory balance.