The impact of radio frequency identification on the Sarbanes-Oxley Act of 2002

Abstract

In the early years of the 21st century, a number of corporate accounting scandals forced the government to hastily adopt regulations aimed at protecting investors and restoring confidence in the financial markets. Among its provisions, the Sarbanes-Oxley Act of 2002 requires public companies on a best effort basis to set up internal controls and procedures ensuring the proper collection and recording of data in their financial statements. The ambiguity and qualitative nature of the law exposes companies to the necessity of providing fine-grained item level financial information. Such information is made possible by the application of advanced technologies such as Radio Frequency Identification (RFID). As companies begin to use RFID systems to comply with the Sarbanes-Oxley Act, the Act's deficiencies and insatiable requirement for detailed information will provide fertile ground for lawsuits against those companies that do not fully implement item level RFID technologies. Policymakers will need to revise and clarify the Sarbanes-Oxley Act in order to avoid these costly lawsuits and to protect the values on which the Act was written.