The Impact of Sarbanes Oxley on the
Accounting Industry Since 2001
Introduction
Every profession is defined by a body of theory (Greenwood, 1957). This body of theory
is what defines a profession and provides potential to improve over time. Participants, or
professionals, contribute their knowledge to this fund, referred to as a profession, thus enhancing
the profession and its underlying culture further. All professionals participate either as
contributors or as participants as they represent their profession towards the outside; for better or
for worse: In the case of public accounting in 2001, unfortunately it was for the worse. When a
profession’s reputation deteriorates the industry is forced to change from within. From where this
change must come leaves much room for debate and interpretation.
While the CPA license certainly enhances the image that licensed accountants have in
public, the profession itself is only now in the process of developing an attractive reputation.
Discussing this opportunity as well as the profession’s strengths, weaknesses and threats and how
the accounting profession may develop in the long run shows how difficult and complex this
process really is. Further, there are other methods besides public policy that the public
accounting profession might use to restore public confidence not only in the profession, but also
in public markets. Thus, for a profession to experience real and honest change its participants
must knowingly and willingly undergo organic and honest change that stems from the heart.
How did the profession suffer in 2001 and where are we now?
Back in 2001 many would have described the accounting profession as abuses, trickery
and accounting hocus-pocus. Unfortunately this is often still the case, but the professionals from
the industry have tried very hard to change this. Before the Securities Act of 1933 and the
1
Securities and Exchange Act of 1934 the accountant’s task was narrow. It was the accountant’s
task to present the financial statements the way they were, but such that they made sense to a
reasonable user. This would obviously change drastically, fast forward to 2001.
In 2001 financial statement presentation was as opaque as ever. In an interview with
former SEC Chairman (1993 to 2000) Arthur Levitt, the former Chairman raises the question,
“why is it that it has increasingly become about how to fool the public than to present the
financial statements as they are? The use of pro forma numbers, the way managers hope the
numbers will shake out, not the way they really are.” This is an enormous problem. There is
much work to be done as long as such statements accurately convey public sentiment towards
U.S. capital markets and those who audit the participants.
Should there be room for creativity in the accounting profession after 2001?
Accountants have become very creative as the business environment in the United States
has grown increasingly competitive. In the wake of the 2001 scandals at Enron and WorldCom it
became so bad that society began to raise the question: are accounting scandals symptomatic of
the accounting profession or are accountants all just a group of villains?
Raising such questions is detrimental to the strongest financial market in the world. The
integrity of public financial statements hinges on the faith society instills in them. Society began
to doubt that financial statements represented economic reality over night, which posed an
enormous threat to the strength of public markets. Authorities quickly realized that public
markets in the United States would be as weak as anywhere else in the world in the absence of
public confidence. Thus the accounting profession spent the next thirteen years convincing the
public that this could change.
2
The profession is in the process of rescuing itself
The Sarbanes Oxley Act of 2002 provided legislative reform concerning the accounting
industry. While Sarbanes Oxley was designed to assign responsibility and enhance the integrity
of financial statements the profession is organically improving the profession at heart. Following
a personal ethical code and taking a stand for what is right are behaviors that are now considered
cool among professionals both young and old.
Humans generally take a while to warm up to trends. For example, ten years ago, it was
very unpopular to recycle or to compost organic waste. Today, the social institution, depending
on geographic region, frowns down on not recycling. Having a green attitude has become cool!
Another example: ten years ago, no one wore a helmet to ski or snowboard. But, the social
institution trained society to not only think “safety” is cool, but to urge others to be cool and
wear a helmet too. Following a code of ethics in the accounting industry is following a similar
pattern notwithstanding a PCAOB code of ethics that all accountants are forced to follow by law.
The more accountants that consider following a moral compass is cool, the less prevalent
fraud will be. An environment should be developed where accountants feel a sense of agency; a
sense of wholeness and purpose. Accountants should feel accomplished and proud to act as
agents on behalf of all stakeholders. “Public accountants hold dual citizenship in the
firm/employer and society. Accounting attempts to quantify and explain the complex reality of
business,” says Lawrence Metzger, a professor of accounting at Loyola University of Chicago.
Describing a profession as such gives the profession a sense of meaning. A licensed CPA should
feel distinguished and be proud to serve the greater good.
Trustees of the accounting profession
3
Perhaps education should be responsible for rescuing the ailing reputation of public
accounting. Colby and Sullivan from Carnegie Foundation for the Advancement of Teaching
Society suggest that perhaps “professional schools have the potential to serve as trustee
institutions for the integrity of their field.” The authors make a case that the last decade has
inarguably been very difficult for the accounting profession as public trust eroded after 2001.
The researchers claim that it may make sense to make professional schools responsible for
instilling the moral values necessary to be a successful accountant. Colby and Sullivan argue that
“the premise underlying this ‘Preparation for the Profession’s Program’ is that educational
preparation for professional work is essentially formative, extending beyond cognitive
development and the acquisition of technical knowledge and skills. Educational preparation
should include the development in students of a deep understanding of a profession’s
overarching purposes and standards as well as a sense of professional identity with these
