Many decisions in accounting and auditing involve judgment calls. Nevertheless, there are rules that cannot and should not be broken. Over the last several years, a number of major publicly traded corporations in the United States have committed accounting fraud and as a result have filed for bankruptcy protection. John Weinberg in Economic Quarterly comments that these bankruptcies have resulted in the loss of hundreds of billions of dollars in stock value รป wiping out the life savings of numerous investors and putting tens of thousands of individuals out of work (Weinberg 1). These bankruptcies caused a large disruption in the United States economy.
An article in Australasian Business Intelligence indicates that President Bush is serious about signing into law tougher laws to fight corporate crime and accounting fraud. New laws are needed to restore consumer and investor confidence following several recent corporate scandals. Other changes include regulations governing how independent CPA firms are expected to carry out their fiduciary responsibility to report accurately about the financial condition of their clients ("Bush to ride shotgun on corporate crime" 1008190).
Penalties for financial fraud have expanded under The Sarbanes-Oxley Act, often referred to by the acronym SOX. Constance Foster in Business Insurance writes that the goals of SOX include reducing the incidents of improper behavior; improving internal controls at every level and in every department within the organization; improving compliance with SEC regulations; and ensuring that public companies strictly adhere to Generally Accepted Accounting Principles (GAAP) as defined by the Financial Accounting Standards Board (FASB) (Foster 24).
The SOX Act was signed into law on July 30, 2002 but even before it became law companies were examining their new responsibilities under this legislation. The law attempted to address the issues raised by accounting fr...