Sarbanes-Oxley Act

will it close the GAAP between Economic and accounting profit

Principles or guidelines enforced on companies for drafting their finance statements, so as to provide investors with least possible level of reliability in the financial statements used while analyzing companies for investment purposes. refers to a widely accepted set of rules, standards,
conventions, and procedures for reporting financial info

Accounting Profit
A company's total earnings, calculated according to Generally Accepted Accounting Principles (GAAP), and includes the explicit costs of doing business, such as depreciation, interest and taxes.

Economic Profit
The difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. This can be used as another name for "economic value added" (EVA).

 In response to numerous corporate failures in the private sector and a loss of confidence in accountability, Sarbanes-Oxley Act was enacted in 2002 by U.S Congress. to protect investors from the possibility of fraudulent accounting activities by corporations. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards leads to formation of SOX Act.

 The rules and enforcement policies outlined by the SOX Act amend or supplement existing legislation dealing with security regulations. The act includes significant reforms intended to strengthen auditor independence and to improve audit quality. Government auditors and financial professional must get the message from the SOX act reforms and seize upon the opportunity to modernize our profession for future.

Provision of Sarbanes-Oxley Act

Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls

SOX Conflict with Economist

Sox primarily focuses on detecting and preventing fraud via improved auditing but doesnt concern with how to measure profit. According to economists following GAAP, financial statements overstates the Accounting profit.

 According to one of the leading economist Robert Bartley

for while there has been some cheating and corner cutting , the real problem with corporate reporting is conceptual. EPS, the familiar earning per share(accounting profit divided by number of outstanding shares of common stock) is supposed to measure corporate profit ,as determined by GAAP. But economists have long realized that profit is.by no means the same thing as accounting profit.

 According to another leading economist G.Bennett Stewart

The real problem (causing the recent accounting scandals) is that the earning and earning per share (EPS), as measured according to GAAP, are unreliable measure of corporate performance and stock-market value, Accounting simply are not counting what count and measuring what matters. The most noteworthy flaws in GAAP is that no charge is deducted from [revenue] for cost of providing shareholder with a ..return on their investment. the most significant proposed adjustment of GAAP Is to deduce the cost of equity capital from net income . Failure to deduce it is a stupendous earning distortion.

Impact of accounting fraud

Conclusion
We can say that indeed SOX reduces the cases of malfeasance and manipulation of financial statement by various implications and changes in auditing but it doesnt deal with the root cause for accounting scandals which resulted from the difference between the Accounting profit and economic profit due to GAAP. Indeed the resulted scams effect the firm itself but it has even more of an adverse effect on a nation since many foreign investors see investment more risky lead to sometimes economic crisis.

References
www.google.com and wherever it takes after I searched any term or situation.