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The Sarbanes-Oxley Act of 2002 has been the root of much discussion and debate over the past three years. The purpose of SOX was to restore public confidence in the markets after this confidence was weakened by these scandals through various requirements which include, among other things financial reporting requirements and corporate governance expectations. It imposes additional burdens on doing business in an effort to make the firm and its executives more accountable for the corporate governance, business operations, and financial reporting of the company. The purpose of this paper is to present a brief recent history of efforts to regulate corporate governance around the world; present the key provisions of the Sarbanes-Oxley Act of 2002; and discuss the impact of this Act on foreign companies doing business in the United States on their operations and reporting worldwide. The paper concludes with some open-ended questions left unanswered which, over time, will be answered based on the future responses to the Act including whether the United States has attempted to impose its laws in other jurisdictions and whether such attempts are overreaching.
Introduction
The accounting scandals of the recent decade have had a major impact on corporate governance as we knew it, for "when seismic events shake investor confidence in large international corporations, the worldwide landscape of public company governance changes" (Green and Gregory, 2005 p. 48). The fact that a ripple effect can cause a company heart burn and consternation is often overlooked in a climate where globalization has resulted in thousands of public companies doing business in different foreign jurisdictions. The result of this globalizing force is that global firms must research the laws of each jurisdiction in which they do business and retain local experts to ensure compliance. This obviously creates a significant financial burden for firms intending to enter global financial markets.
Sarbanes-Oxley Act of 2002
Corporate Accounting Practices Act, more commonly known as the Sarbanes-Oxley Act of 2002 ("SOX") was passed by Congress on July 30, 2002 in response to the corporate scandals of the late 1990's early 2000 's. Its purpose was to restore public confidence in the markets after this confidence was weakened by these scandals (Green and Gregory, 2005, p. 50). Accordingly, the major provisions of...