Sarbanes-Oxley Act of 2002: Corporate Governance and Public Accounting Firms Oversight in NAFTA Countries

Abstract

The Sarbanes-Oxley Act of 2002 was the U.S. government's response to massive corporate frauds in the United States. The purpose of the SOX Act was to renew the public's confidence in corporate financial reporting by focusing on the improvement of corporate governance practices. Many governments reacted to the possibility of similar cases of massive corporate fraud in their countries by reexamining their corporate governance rules and oversight of their auditing profession. This paper presents an overview of the Sarbanes-Oxley Act of 2002 and the related SEC and U.S. Stock Exchanges rules that have been issued in response to the Act. It also examines the responses of the NAFTA countries, Canada and Mexico, to the SOX Act provisions. In order to achieve the free flow of capital across borders, investors and creditors must have confidence in the transparency of the companies' financial reporting process, their corporate governance practices, and the oversight of the nation's auditing and accounting professions. On the 10th anniversary of NAFTA, it is an appropriate time to compare the corporate governance laws and related practices in the three NAFTA countries.