Sarbanes Oxley Act

The Sarbanes Oxley Act was introduced in 2002 in the United States in response to the shattered
investor confidence due to corporate failures in the firms like Enron and WorldCom. The act’s
purpose was to restore this lost investor confidence in the corporate America and force the
corporate firms to increase their internal control, and protect the rights of the minority
shareholders by incorporating new terms in the rules and regulations to be followed. Which
primarily included new rules for the publically traded firms, and for the audit firms, and also
created the Public Company Accounting Oversight Board (PCAOB) for oversight of the audit
firms. The aim was to create an environment where transparency and accountability existed.

Limitations in the Pakistan’s Context

Currently, Pakistan’s corporate governance is regulated by Code of Corporate Governance (CCG) .
Unlike United States, Pakistan is not considered to be a corporate haven and does not attract a lot
of investments dues to political instability, poor international image, security reasons and a lack
of opportunities and a limited number of publically listed firms. Thus, it is important that the
consequences and increased expenses of increased regulations are considered both those firms
that may not go public due to fear of such increasing costs and for those firms that may delist as
the management feels that they are focused on compliance to the regulations rather than running
their businesses.

Implementation of Sarbanes Oxley in Pakistan:

It is important that the policy makers perform a cost benefit analysis for implementation of SOX
rules and regulations in the Code of Corporate Governance so that the publicly listed are not
overburdened with additional expenses to follow such rules.

1. SOX has clearly mentioned and articulated the non-audit services that an audit firm
cannot provide to its client to clarify the understanding for both parties involved. Thus, it
is important CCG also incorporated and explains the non-audit services which cannot be
provided.
2. SOX section 101, clearly outlines the existence of an independent non-government
organization (PCAOB) for the oversight, monitoring and enforcement of rules and
regulations on the audit firms. In Pakistan’s code of corporate governance ICAP is
responsible for registration, oversight and regulations of the audit firms. Because some
members of the ICAP are also members of the audit firms, thus there is a conflict of
interest. By implementing the SOX aspect of an independent organization, we can
eliminate the conflict of interest.

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