Economics 550 Essay

727 WordsDec 21, 20133 Pages
"Short- and Long- Run Impact" * Evaluate the overall effectiveness of the Sarbanes-Oxley Act to date, and determine who has benefitted most from the passage of the act. Provide two specific examples to support your response. The Sarbanes-Oxley Act was not just a response to Enron despite the failures its collapse exposed. As the Los Angeles Times reported January 26, 2002, less than two months after Enron filed for bankruptcy: "There was a total failure by everyone, a complete breakdown in the system, in all the checks and balances. It was a failure by Wall Street analysts who just went along for the ride, and by the auditors who were collecting so much money they couldn't walk away from it, and by government agencies who are supposed to monitor those companies." This post-enactment decline in enthusiasm was the result of two main factors. First, some may have forgotten that, prior to the bill's passage, the stock market was in a tailspin and investor confidence in the core integrity of our capital markets was near all-time lows. Investor confidence began to improve in the months after the legislation became law. Second, Sarbanes-Oxley increased the cost of participating in the U.S. capital markets, and no one likes to bear increased costs. Ultimately, however, investors have almost unanimously said that they believe the higher costs are outweighed by the increased confidence they now have in the reliability of corporate financial reporting. Those who would seek to provide the market with misleading numbers are less likely to be able to do so because the public company internal controls are now much more effective; independent auditors comply with stronger standards and also have an independent regulator to oversee their efforts on behalf of investors and other stakeholders; audit committees must now be more competent and engaged in overseeing the audit and

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