Corporate fraud : the effectiveness of the Sarbanes-Oxley Act of 2002

Abstract

The Sarbanes–Oxley Act was passed in 2002 after the collapse of Enron and several other big corporations. The goal of the new law was to combat the rising level of corporate fraud cases, tighten governance, hold corporate executive accountable and increase the penalty for individuals involved in fraudulent and unethical actions. Unfortunately, the goals were not met as expected and the flow of fraud continued involving key banks and corporations (HealthSouth, Lehman Brothers, etc...). During the period pre and post Sarbanes-Oxley Act, some recurrent themes were identified to be the root causes behind the corporate fraud suggesting the failure of new law to meet its planned objectives and to address the underlying causes of the problem. The paper will identify and address these recurring themes and will suggest steps to address the corporate fraud issues in an attempt to decrease the likelihood of their occurrence.