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Investors who got a midsummer haircut last week during the Dow’s 735-point drop from 14,000 probably aren’t singing Happy Birthday for the Sarbanes-Oxley Act, which is 5 years old today. But maybe they should be.

If you think last week’s sell-off was bad, recall the summer of 2002. Enron had imploded, WorldCom admitted to fabricating billions of dollars in earnings, and prosecutors were swirling around Tyco and Adelphia. From May 24 of that year to July 23, the Dow dropped from 10,104 to 7,702, a plunge of 24%.

That wasn’t a haircut, or a correction. It was a full-blown crisis. The public, and even the White House, demanded action.

In response, Congress passed the Sarbanes-Oxley Act on July 30, 2002. The law forced public companies to spend much more money having their books thoroughly audited, and it increased the penalties for executives who defrauded investors. Since the bill’s passage and implementation, nervous investors who had yanked trillions of dollars from the market have returned.

USA Today: Sarbanes-Oxley law has been a pretty clean sweep

TOPIC: An annual study by Oversight Systems found approximately 75 percent of certified fraud examiners claimed institutional fraud is more common now than five years ago according to an article by Wall Street and Technology. Four out of five survey participants cited the pressure “to do whatever it takes to meet goals” as the most common reason for corporate fraud. July 2007 marks the fifth anniversary of the Sarbanes-Oxley Act, which was passed in 2002 in an effort to prevent and deter accounting scandals, such as those that occurred with Enron and WorldCom.

EXPERTS: ExpertSource can offer several highly qualified experts to comment on this story:

Yahoo.com: Experts Available to Discuss Survey on Corporate Fraud, Sarbanes - Oxley’s Fifth Anniversary

Study finds small firms hit especially hard

A new University of Georgia study finds that the landmark Sarbanes-Oxley Act of 2002 and related rule changes of the major stock exchanges have dramatically altered the makeup of corporate boards, making them larger and more independent. The legislation also had the unintended effect of increasing director pay by more than 50 percent.

“Post Sarbanes-Oxley, the demand for directors by firms is up and the supply is down because the job is harder,” said study co-author Jeff Netter, a finance professor and chair holder in UGA’s Terry College of Business. “So what do you find” Pay is up – pay is way up.”

The Sarbanes-Oxley Act (SOX) was passed with near unanimous Congressional approval following the corporate scandals that brought down companies such as Enron and WorldCom. Among other things, the act and changes imposed by the New York Stock Exchange and Nasdaq sought to enhance corporate governance by promoting board independence and imposing greater responsibility and accountability on board members.

EurekAlert: UGA study finds surge in director pay following landmark Sarbanes-Oxley Act of 2002

U.S. accounting overseers voted Thursday to streamline rules for auditors’ assessments of corporate financial statements, in a move that supporters say will save time and simplify burdens imposed by the 2002 Sarbanes-Oxley Act.

By unanimous vote, the five members of the Public Company Accounting Oversight Board approved a new standard directing accounting companies to focus their audits of internal financial controls on the most important risks.

Under Section 404 of the Sarbanes-Oxley Act, public companies are required to test and report their procedures for catching financial misstatements and fraud. The law was approved in the wake of accounting scandals that brought down companies like Enron and WorldCom.

But Section 404 of the act came in for heavy criticism from companies who said it cost large amounts of time and money by requiring extensive and sometimes unnecessary checks on financial reporting. It’s also been the cause of hang- wringing among some lawmakers and experts who claim it’s partly responsible for making U.S. capital markets less attractive to foreign companies, who fear the heavy compliance burden of the law.

Nasdaq: UPDATE: Accounting Board Streamlines Sarbanes-Oxley Rules

Sarbanes-Oxley world continues to turn. And although many claim that it is spinning out of control, signs are beginning to indicate that a move to a more stable and rational environment is pending. Let me highlight just a few of the reasons for the roller coaster ride and some of the relief that is on the way.

Real or perceived drastic events result in drastic measures. The nine?month period that ended with the passage of the Sarbanes-Oxley Act of 2002 was no exception. A quick look at the major headlines during that time tells the tale of a crisis in the making.

• Nov. 8, 2001 — Enron restates earnings for past five years, reports $586 million in losses
• March 27, 2002 — Adelphia says $2.3 billion borrowed by Rigas family not on books
• June 4, 2002 — Tyco CEO indicted on tax evasion charges
• June 12, 2002 –ImClone CEO Samuel Waksal arrested on insider trading charges
• June 25, 2002 — WorldCom admits to inflating earnings by $3.8 billion

LocalTechWire: As the World Turns, Businesses Continue To Struggle With Impact of Sarbanes-Oxley

Political sentiment runs in predictable cycles. In the midst of the stock-market bubble, no one cared about regulation and oversight. Everyone was making too much money to bother.

Then the money machine stopped, companies such as Enron and WorldCom blew up with their spectacular accounting frauds, and everyone was screaming for blood. A few perp walks and one big legislative package later, we entered the Sarbanes-Oxley era.

The avalanche of multibillion-dollar corporate implosions stopped. Many companies are still sorting out the impact of realistic options expensing going back several years, but the shakeout from that exercise is almost over.

What are we left with? A much fairer playing field for the individual investor. Between Sarbanes-Oxley shoring up the integrity of company accounts, and Regulation Fair Disclosure (better known as Reg FD) limiting leaks of inside information, the market is a better place to invest in than it was in summer 2000, by far.

Motley Fool: I love Sarbanes-Oxley

In response to Enron, WorldCom, Tyco, Peregrine and some of the biggest accounting firms playing a shell games with the corporate books, Congress enacted The Sarbanes-Oxley Act in 2002.

Today Siemens, based in Munich, Germany is being eyed for over 500 million dollars worth of bribes to public officials in Asia, Eastern Europe and Africa and other questionable payments by the company which occurred without top managements knowledge, according to the International Herald Tribune.

In Germany it is a crime for corporate officials to bribe a public official. It is a crime in most modern countries to report embellished earnings or hide essential facts to their investors. Essentially, Sarbanes-Oxley and every other codification of bad conduct cannot prevent anyone hell bent on greed from devising a plan of deception.

American Chronicle: Sarbanes-Oxley Can’t Beat Culture of Good Old Fashion Greed

Steve Forbes, chief executive of media giant Forbes, has predicted that US lawmakers will implement major changes to the controversial Sarbanes-Oxley (SOX) Act, in the wake of the sentencing earlier this week of disgraced Enron executive Jeffrey Skilling.

Speaking after his keynote speech at SAS’ BetterManagement Live conference in Las Vegas yesterday, Forbes argued that the SOX corporate reporting legislation had been rushed through in the wake of the collapse of Enron and Worldcom. As a result, he said the rules were ineffective, onerous and unnecessary.

“A person intent on committing fraud will not be deterred by paper walls,” Forbes said. “The best [defence against] corporate crime is stiff jail sentences.”

Forbes insisted the legislation was damaging the US economy, resulting in IPOs that would have been undertaken in New York being lost to London and Hong Kong.

“The brain power and time that goes into [complying] should be spent on productive pursuits rather than on this activity that does very little in either improving internal procedures or preventing crime,” Forbes argued. “I think there is going to be, and should be, a relook at Sarbanes Oxley in a more calm atmosphere now that Jeffrey Skilling is going to be out of circulation for a while.”

Advocates of SOX have argued that while costly in the short term, forcing firms to develop systems and processes that provide better visibility over their operations helps them optimise performance and improve governance.

Here the link to the story of IT Week.