From Crisis to Confidence: How SOX Reshaped Audit Quality
This month marks the 23rd anniversary of the Sarbanes-Oxley Act (SOX), landmark legislation that reshaped financial reporting standards and audit oversight in the U.S. capital markets. Developed in response to early 2000s accounting scandals, SOX was designed to restore confidence, protect investors, and build a more resilient financial system. More than two decades later, audit quality in the U.S. has never been higher, and America’s auditors are the world’s gold standard.
Read on to see how SOX enables the profession to continue evolving in today’s ever-changing economy.
Then and Now: What’s Changed
In the early 2000s, the financial world was rocked by the bursting of the dotcom bubble, a wave of high-profile corporate bankruptcies, and headline-making fraud and accounting scandals. Investor confidence plummeted, and these events exposed structural weaknesses in corporate governance and financial oversight.
SOX emerged in direct response to this crisis of confidence, ushering in a new era of accountability. The shift from pre- to post-SOX is not just regulatory—it helped restore trust in the capital markets. Frank Milano, Managing Partner at Deloitte, echoes this sentiment.
SOX emerged in direct response to this crisis of confidence, ushering in a new era of accountability.
The changes SOX introduced, from evaluating and reporting on internal controls to greater executive accountability and independent audit oversight, have done more than raise the bar for compliance. Audit leaders like Brian Croteau, US Chief Auditor at PwC, emphasize that SOX reshaped the culture of the profession itself, embedding transparency, responsibility, and trust into the DNA of audit firms and the financial reporting ecosystem.
It sparked a broader shift in how independent audits influence and maintain trust in our economy. You can learn more about it at thecaq.org/AuditEffect.
A Catalyst for the Audit Effect
By strengthening internal controls, elevating the role of independent audit committees, and redefining expectations for transparency, SOX laid the groundwork for high-quality audits fundamental to building trust in U.S. capital markets. Deloitte’s Milano understands firsthand how financial reporting evolved due to SOX.
SOX laid the groundwork for high-quality audits fundamental to building trust in U.S. capital markets.
Assurance from public company auditors is critical to building trust in company-reported information. It helps to provide investors reliable information to support capital allocation decisions that help companies compete, innovate, and grow. Assurance is a vital thread running through a well-functioning economy.
The corporate reporting landscape is not static. Since SOX was enacted, investors have sought expanded insights in an increasingly complex business environment. Today, auditors continue to uphold independence, objectivity, integrity, and transparency while meeting new investor expectations. From AI to sustainability and cybersecurity, the reporting landscape continues to evolve, but the integrity behind the work remains rooted in the structure SOX built.
A Foundation for Future Generations
SOX transformed how firms train and mentor the next generation of auditors. From day one, new professionals learn to uphold the values embedded in SOX: objectivity, professional skepticism, and accountability. Many public accounting firms integrate these values into their work models. For PwC’s Croteau, supporting the next generation of accountants is a multi-layered approach.
Since SOX was enacted, investors have sought expanded insights in an increasingly complex business environment.
This education goes beyond textbooks. It reflects in the way audit teams work together, how senior leaders mentor new staff, and how firms build integrity into their day-to-day culture, preparing auditors for today’s and tomorrow’s challenges.
Looking Ahead
SOX is one of the most impactful trust-building frameworks in our financial system. Its principles guide audit and accounting professionals to maintain high audit quality and provide investors with reliable information. As the capital markets continue to evolve, assurance from public company auditors supported by SOX’s framework remains key to upholding trust and transparency.
Learn more about the Audit Effect and follow the CAQ on LinkedIn for the latest public company auditing updates.