The Case of Phar-Mor Inc.

Could SOX Have Prevented the Fraud?

S. Lansing Williams, CPA, MBA

The Sarbanes-Oxley Act of 2002 (SOX) was an effort to increase the confidence of investors after a number of high-profile corporate failures due to malfeasance on the part of corporate officers and poor internal controls. After the failures of Enron, WorldCom, and other large companies—which resulted in huge losses to investors—Senator Paul Sarbanes (D-Md.) and Representative Michael Oxley (R-Ohio) coauthored a bill that resulted in public companies improving the accuracy of their financial reports. The law contains 11 major sections, including (Title i) public Company Accounting Oversight Board, (Title II) Auditor Independence, (Title III) Corporate Responsibility, (Title IV) Enhanced Financial Disclosures, (Title V) Analyst Conflicts of Interest, and (Title VI) Commission Resources and Authority. Titles VII, VIII, IX, X, and XI deal with studies and reports, corporate and criminal fraud accountability and white-collar crime penalties, corporate tax returns, and corporate fraud and accountability.