THE EFFECTIVENESS OF THE SARBANES OXLEY ACT OF 2002

The effectiveness of the Sarbanes Oxley Act of 2002 in preventing corporate fraud.

A Dissertation Prospectus

Submitted to

The Faculty of Argosy University-Orange County Campus in partial fulfillment of the requirements for the degree of Doctor of Business Administration

By

Melva L. Wright

Argosy University/Orange County

Santa Ana, CA

October 29, 2008

Introduction

The Sarbanes-Oxley Act of 2002 (SOX) was established through legislation to curtail a number of corporate fraud at the turn of the century. SOX is a HHFederal lawHH enacted on July 30, 2002 in response to a number of major HHcorporate and accounting scandalsHH including those affecting HHEnronHH, HHTyco InternationalHH, HHAdelphiaHH, HHPeregrine SystemsHH and HHWorldComHH (Sarbanes-Oxley, 2002). Before Sox, audits were done by auditing firms with standard guide lines to follow and if a company met these guide lines an opinion was given about the statements. Research has been done in the past on publicly held companies before the enactment of SOX. This paper will focus on corporate fraud after the enactment SOX; to examine corporate fraud on audit committees, misreporting, and misappropriation of the company's assets.

Currently, what affects has SOX had on corporate governance with the demise of Enron WorldCom, and Tyco International? Enron ranked seventh in the largest Fortune 500 companies in the United States. Enron had heavy debts, which they leveraged and reported some of the debt on their Balance Sheet. Basically, this created a problem when stock prices fell and the debt that was not recorded applied pressure on the debt agreements (Thakur, Kalra & Karkun n.d.).

WorldCom however, overstated its profits for nearly a year and a half and Tyco International shareholders were not informed of the $170 million in loans that were taken by its Chief Executive, Chief Financial Officer and Chief Legal Officer. These were interest free loans and were later forgiven. SOX have forced top management to certify that financial statements are free of fraud and material misstatement. Some companies may under estimate the use of an independent auditor and feel it may not be sufficient. They should take advantage of a forensic accountant on their audit team. If Enron and the others had added a forensic accountant to their audits it might have saved the careers of some high-profile corporate executives (Sarbanes-Oxley Act, 2002), (“Why it matters”,n.d.) & (“What happen during, n.d.”).

According to Rowlingson (2004), gathering and using digital evidence has benefits and leads to a deterrent on crime which, happens internally to companies most of the time. Digital evidence can be used to prevent a crime or an incident from occurring if the proper safe guards are in place (Rowlingson, 2004). Patzakis (2003) concluded that in addition to creating new and apparently powerful Public Company Accounting Oversight Board (PCAOB) addressing corporate issues. The new law also mandates retention of electronic documents, imposes strict criminal penalties for altering or destroying records,( including those kept in electronic form), mandates production of electronic records, and other accounting documents when summoned by the new Oversight Board (Patzakis, 2003).

Statement of the Problem

The 100 largest corporate crimes ...