Academic journal article Academy of Educational Leadership Journal

An Innovative Approach for Integrating the Sarbanes Oxley Act into the Undergraduate Business Curriculum

Academic journal article Academy of Educational Leadership Journal

An Innovative Approach for Integrating the Sarbanes Oxley Act into the Undergraduate Business Curriculum

Article excerpt


The Sarbanes Oxley Act of 2002 or "SOX" has permanently changed the way the business community operates. As a result, it is important for business students to understand this legislation so that they can add value to future employers. Currently SOX is seen as an accounting rule and so is taught to accounting majors and not business students. This paper offers an alternative approach to teaching SOX, as we believe that SOX is a business issue not only an accounting issue. We firmly believe that all business students should be exposed to the significant requirements of the Sarbanes Oxley Act as required for all management in publicly traded companies. Resources are provided to help all business instructors increase their knowledge of this legislation to ensure that SOX is fully integrated into the business school culture.


"SOX" refers to the Sarbanes Oxley Act of 2002 (the "Act") that was enacted into law by the United States Congress. It applies to all Securities and Exchange registrants (i.e., public companies) and their external auditors. The key sections of the law includes requirements for (a) the establishment of the Public Company Accounting Oversight Board or PCAOB, (b) Auditor Independence, (c) Corporate Responsibility, and (d) Enhanced Financial Disclosures. From first glance this might lead one to believe that SOX is of interest only to accounting professionals. In reality, most professionals in all publicly traded companies are affected by SOX and they should be aware of what their responsibilities are under the Act. This article is meant to acquaint those who need to know about SOX and its place in a university business curriculum: business deans, business faculty and book publishers.

The SOX Act resulted from the mounting accounting and corporate scandals in the late 1990s and early 2000s. These scandals resulted in the loss of investor confidence in corporate financial reporting. The bad news was nonstop as firms such as Adelphia Communications, Global Crossing, Rite Aid, Xerox and Tyco revised their earnings reports to reflect the impact of earnings management, management fraud and other 'creative accounting' practices. As a result, SOX was passed into law and signed by Congress and the President in record time.

Perhaps the two organizations that had the biggest impact on the passage of SOX were Enron and WorldCom. Management fraud at Enron forced the company to file for bankruptcy protection in December 2001, the largest bankruptcy in the country at that time. This company reported assets of approximately $62 billion and spectacular and consistent earnings growth for many years. However, management inflated earnings by approximately $600 million for the six years prior to its bankruptcy filing. Seven months later, Enron's bankruptcy filing was overshadowed by the collapse of WorldCom in July 2002. This company, with $100 billion in assets, was forced into bankruptcy by a massive management fraud. Both Enron and WorldCom were given clean audit reports that were distributed to the investment community for many years with the underlying financial statements audited by Arthur Anderson.

With the mounting bad news reported by these premier companies whose financial statements were audited by the Big Five accounting firms, the investing public demanded some reform from the legislators to bring credibility to corporate financial reporting. The Sarbanes Oxley Act was enacted into law in response to this demand.


SOX was implemented to strengthen and improve corporate responsibility. The area of corporate responsibility should be of interest to all business students, since corporate responsibility affects all levels of upper management in all public companies. This includes accountability by executives, boards of directors, and auditors. Another purpose of the Act was to improve companies' communications to investors regarding their activities and the financial climate, again an area not just relegated to accounting personnel. …

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