The Sarbanes-Oxley Act of 2002 was primarily designed to address the extensive fraudulent accounting practices undertaken by the accountants for Enron and WorldCom. One of the biggest problems with regard to the accounting used in preparation of financial statements by corporations has been the issue of non-salary executive compensation. Corporations, as part of a lucrative and complex combined incentive and retention program, often offers to the executives, stock options and enhanced performance pay at extreme levels. The key debate in this situation, with regard to accounting practices, has been how these incentives should be represented on annual and quarterly corporate financial reports. .

             The position of the Internal Revenue Service has generally been that corporations, in order for the government to fairly obtain the tax benefits should list these compensation plans (options, in particular) as expenses on the corporate financial reports. (See Simon Kennedy and Brendan Murray, IRS Proposes Stock Options be Expensed for Some U.S. Affiliates, Bloomberg News Wire Service, Jul. 26, 2002). If corporations were to expense executive compensation plans, this would reduce their overall profits. However, there are those, including the celebrated and successful CEO of Berkshire Hathaway, Warren Buffett, who would argue that this reduced profit figure is a more accurate reflection of a corporation's performance. (See Warren E. Buffett, Who Really Cooks the Books, NY Times Jul. 24, 2002). In fact Buffet proclaims that "When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. And if expenses don't belong in the earnings statement, where in the world do they belong?" Unfortunately, however, the Sarbanes-Oxley Act only indirectly addresses the problem of the inclusion of executive compensation in financial statements. Title I, Section 108 of the Act requires audits to follow generally accepted accounting practices for the preparation of corporate financial statements and in the end it makes no judgment as to the treatment of options by corporate auditors.