Evaluating the Sarbanes-Oxley Act: Accounting Fraud Reduction

This report critically evaluates the effectiveness of the 2002 Sarbanes-Oxley Act (SOX) in reducing accounting fraud. It begins with an introduction to the Act, highlighting its purpose to improve the reliability of financial reporting and restore investor confidence following major accounting scandals like Enron. The report outlines the research aims, objectives, and research question: "Does the 2002 Sarbanes-Oxley Act really work to reduce accounting fraud?" A comprehensive literature review explores various perspectives on SOX, including its impact on audit committees, internal controls, and fraud prevention. The methodology section details the research approach, including the use of secondary data and a qualitative research design employing a case study approach. The report also discusses the research philosophy (Interpretivism), research approach (Deductive), and data analysis methods (thematic analysis). A proposed timetable outlines the research activities, and the report concludes with a list of references.

Running head: DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE
ACCOUNTING FRAUD?
Does the 2002 Sarbanes-Oxley Act really work to reduce accounting fraud?
Name of the Student:
Name of the University:
Author Note:

2
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
Table of Contents
Research Title..................................................................................................................................2
Background of the research study....................................................................................................2
Aims and objectives of the research................................................................................................3
Research Aim...............................................................................................................................3
Research Objectives.....................................................................................................................3
Research Question.......................................................................................................................3
Literature Review............................................................................................................................4
Research Methodology....................................................................................................................7
Research Type.............................................................................................................................7
Research Onion............................................................................................................................8
Research Design..........................................................................................................................8
Research Philosophy....................................................................................................................9
Research Approach......................................................................................................................9
Data Analysis.............................................................................................................................10
Proposed Timetable...................................................................................................................11
Reference List................................................................................................................................12

3
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
Research Title
Does the 2002 Sarbanes-Oxley Act really work to reduce accounting fraud?
Introduction
The Sarbanes-Oxley Act came into existence so that the management of public
companies can assess the effectiveness of internal control of issuers for financial reporting.
According to Section 404 (b), it was mentioned that the Act need a public held company auditor
to attest and report on the management assessment regarding their internal control activities.
When Congress suddenly passed Sarbanes-Oxley Act of 2002, they had in mind to combat fraud
that will improve the dependability of financial reporting as well as reinstate confidence among
the investors (Willits & Nicholls, 2014). The most troublesome element of Sarbanes-Oxley Act
was Section 404 where the main responsibility of the manager was to uphold a sound internal
control arrangement for monetary coverage as well as assessing its own effectiveness. The
responsibility of an auditor is to show to the soundness of assessing the organization as well as
report to the state of overall financial control scheme. After implementation of Sarbanes Oxley
Act, many accounting fraud and scams could be noted and lead to reduce accounting fraud. The
Enron Scandal is a well-known one to all where companies did whatever they can do for
preventing employee fraud. To that, companies have not fundamentally changed their fraud
prevention policies as well as events (Basile, Handy & Fret, 2015). Sarbanes-Oxley Act had been
the answer to many of the fraud activities. This Act was planned to restore faith in the
truthfulness of business as well as executives that had not been measured yet that can have

4
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
impact on fraud. Rules under Sarbanes-Oxley Act create an exclusive paperwork exercise for
companies.
Aims and objectives of the research
Research Aim
The main aim of the research study is to find out how far implementation of Sarbanes-
Oxley Act helped in reducing accounting fraud.
Research Objectives
To find out whether Sarbanes-Oxley Act helped in reducing accounting fraud
To highlight the reason behind less accounting fraud today (Garner, McKee & McKee,
2014)
To discuss how whistleblowers make potential violators think twice before planning for
fraudulent activities
To elaborate on facts as to why accounting frauds has not gone away completely
irrespective of controls, detection and incentives (Abdioglu et al., 2015).
Research Question
1. Does the 2002 Sarbanes-Oxley Act really work to reduce accounting fraud?
2. What is the reason behind less accounting fraud recently?
3. How whistleblowers make potential violators think twice before planning for fraudulent
activities?

5
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
4. Why accounting fraud has not gone away completely besides so much of improvements,
control, detection and incentives?
Literature Review
As rightly put forward by Pompper (2014), Sarbanes-Oxley Act has cost companies
million of dollars yearly at the time of implementation with a rough estimation of $1 trillion.
Though, this has been a huge money-making chance for the consultants who are engaged in
assisting with Sarbanes-Oxley compliance and values that it adds to the business stakeholders.
There is good evidence that Sarbanes-Oxley Act of 2002 has enhanced the quality of financial
reporting by improving the audit committees, audit profession as well as internal controls and
individual accountability (Basile, Handy & Fret, 2015).
According to Kim (2014), Sarbanes-Oxley Act focused mainly on bringing improvement
within the Audit Committees, auditing as well as internal control disclosures that is not directly
linked to fraud prevention activities. Improvement is needed in areas that will help in minimizing
the opportunities for committing fraud but there will be possibility of management to override
with the inherent limitations of inherent controls.
As opined by Basile, Handy & Fret (2015), Sarbanes-Oxley Act may get credit for
reducing the number of restatements but it is not clear whether the reduced number of
restatements can be positive or negative. In recent times, managers are using earnings revision
rather than item 404 restatements so that they can handle errors and avoid any clawbacks on
executive bonuses as well as shareholder lawsuits. Therefore, frequent revisions actually raised

6
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
questions about the internal controls that surround with the accounts revised (Karim, Shaikh &
Hock, 2014).
As rightly put forward by Willits & Nicholls (2014), Sarbanes-Oxley Act was feel-good
legislation where shareholder as well as users of financial statements was feeling better after the
big business frauds became public. With government intervention, it was possible that public
companies should now take action against fraud. This Act came out suddenly just to pacify the
investors as well as general public and due to this the legislation lack the impact that everyone
was interested in. The Act actually specifies that company to proactively prevent as well as
detect fraud action but at the same time, the law should mention the comprehensive certification
of the events. Proactive companies have already realized the advantages from the work being
done that complies with Sarbanes-Oxley Act even for the fact that the legislation requires few
definite changes in the way how trade is being conducted. The documentation required Sarbanes-
Oxley Act that causes companies for evaluating some of the procedures and determining the
most standardized procedures when needed. A major role had been played by Business
Corporation while undertaking the internal audit function (Garner, McKee & McKee, 2014). The
internal auditor has stronger presence in terms of risk and control of company as it adds value to
the business organization. Furthermore, the Board of Directors plays important role in most of
the companies especially in areas of controls as well as governance. It was not required for
proactive fraud prevention as most of the company showed interest in making improvements at
organizational level. These companies took the advantage of the opportunity for improving anti-
fraud process in their operations (Abdioglu et al., 2015).

7
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
Sarbanes-Oxley Act was recognized mainly as a direct reaction to the accounting
indiscretion as well as fraud that took place in the accounting firm such as Enron. The company
actually had weak internal control, conflicting interests with the external auditors as well as
abuse of off-balance sheet entities (Garner, McKee & McKee, 2014). Sarbanes-Oxley Act could
easily confront all these issues.
As opined by Willits & Nicholls (2014), Sarbanes-Oxley Act was been accepted by
everyone. This Act came into existence to make any difference in preventing future fraud. It is
argued by some people that the Act will add unnecessary costs as well as diverts the management
attention from its primary mission of innovation, profitability and competitiveness.
Sarbanes-Oxley Act’s strengthening of internal control
The internal control requirements of Sarbanes-Oxley Act are quite extensive. As
mentioned in Section 404, the Act deals with internal control that has received quite bit of
criticism as well as opposition to its demanding requirements (Garner, McKee & McKee, 2014).
In addition, the auditing standards is the process that is designed for providing reasonable
assurance in the areas such as efficiency, competence of operations as well as dependability of
financial reporting and observance with all the laws and regulations (Basile, Handy & Fret,
2015). Sarbanes-Oxley Act actually speaks in three main areas of internal control such as
management assessment of internal control, new audit committee provisions as well as code of
ethics for senior financial managers. Furthermore, the main purpose of the Act is to strengthen
internal control after looking at the internal control of Enron that had lead to collapse of the
company. Most of the people are of the opinion that the Act adds cost weight of the internal

8
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
control requirements that do not add enough value to the smaller companies (Abdioglu et al.,
2015).
The opportunities for accounting fraud are always present at higher levels of company
where there are many accounting frauds that take place. It is mostly of the reason when
management has the ability for overriding even effective internal controls (Basile, Handy & Fret,
2015). It is all about opportunities of accounting fraud that had enhanced to detect the fraudulent
practices in the company. People are getting involved in committing accounting fraud due to
pressure and the accounting fraud include desire to increase personal wealth or obtaining
promotions, efforts for maintaining or elevating social status as well as making an attempt to
escape from penalties of poor performance that postpone the dealing with financial difficulties
(Garner, McKee & McKee, 2014).
Research Methodology
Research Type
Secondary research will be conducted by the researcher to find out whether
implementation of Sarbanes-Oxley Act had actually worked to reduce accounting fraud.

9
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
Research Onion
Figure: Research Onion
(Source: Gast & Ledford, 2014).
Research Design
The secondary research will be conducted by the researcher that is based on mono
method approach that includes only qualitative research design. Here, qualitative research design
means a systematic subjective approach that is mainly used in the research study to define any
type of real-life experiences and give the researcher a meaningful connotation. The current
research is conducted to find out whether implementation of Sarbanes-Oxley Act had actually

10
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
worked to reduce accounting fraud by the researcher through use of secondary data information.
In this particular study, researcher will be using case study approach for gathering the qualitative
data from reports, observations and documents. It is quite important for the researcher to
collected information from collapse of Enron company scandal as this scandal is popular one and
it can be linked with use of Sarbanes-Oxley Act. By using the Act, the scandal could have been
improved and this will be a positive finding for the researcher (Glesne, 2015).
Research Philosophy
The researcher will be using Interpretivism research philosophy for conducting the
research study to find out whether implementation of Sarbanes-Oxley Act had actually worked to
reduce accounting fraud. Interpretivism research philosophy deals with emotional side of human
beings. Positivism and realism cannot be used as it deals with quantitative data activities that are
not possible in this particular research study (Mackey & Gass, 2015).
Research Approach
The researcher will be using Deductive approach rather than inductive approach to find
out whether implementation of Sarbanes-Oxley Act had actually worked to reduce accounting
frauds. The reason for selecting deductive approach is that as the research mainly focuses on
investigating whether the known concept of Sarbanes-Oxley Act is valid or not. This particular
research will create a hypothesis that is based on identified concepts that will test validity by
comparing it with the secondary data. Inductive approach cannot be used by the research as none
of the concepts are new or innovative that needs to be researched. Deductive approach can only

11
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
be used as existing concepts need to be analyzed and drawn conclusion at the end by the
researcher (Panneerselvam, 2014).
Data Analysis
Qualitative data will be collected by the researcher through thematic data analysis
approach. Secondary data will be collected by the researcher from peer-reviewed journal articles,
academic books and authentic websites (Taylor, Bogdan & DeVault, 2015). A source of
secondary data will be collected by the researcher from the field of research such as journal
“Efficacy of the Sarbanes-Oxley Act in curbing corporate fraud” (Rolf, 2005). The source can be
found from https://www.rivier.edu/journal/ROAJ-2005-Fall/J11-ROLF.pdf. Researcher will be
using secondary data that aligns with the research topic as well as identifying the research gaps
that need to be covered in the next paper.

12
DOES THE 2002 SARBANES-OXLEY ACT REALLY WORK TO REDUCE ACCOUNTING
FRAUD?
Proposed Timetable
RESEARCH ACTIVITIES 1st week 2nd week
3rd
week
4th and
5th
week
5th and
6th
week
Research Topic Selection
Developing Research Plan
Literature Review
Research Design
Research Methodology
Findings and Analysis Of
Secondary Data
Constructive Argument
Initial Draft
Conclusion And
Recommendation
Final Submission