Sarbanes-Oxley Act

Sarbanes-Oxley Act was enacted and become into full law in the year 2002. The act came into law to help reduce corporate fraud in various organizations. This was a move aimed at strengthening the internal control systems of the organizations by creating a Public Company Accounting Oversight Board that was given the full responsibility to oversee the accounting operations. Besides, the Act, after becoming into a comprehensive law, strengthened both the financial literacy and independence of various corporate boards. The Act required a manager to maintain an internal control structure that ensures accurate and efficient financial reporting. Besides, the company managers were to be held responsible for any errors made in the financial reports of the company that led to elements of fraud.

Management and Accountant’s Views Sarbanes-Oxley Act

The changes in internal controls of corporations elicited various reactions from both the management and accountants. The managers argued that the Act should be revoked due to the costly nature of audits that were brought about by the Act. Moreover, the Act applies to all the publicly registered companies in the United States regardless of the size. Therefore, the managers thought it wise that the Act should be reviewed and offer exemptions to the relatively smaller companies that could not afford the cost of auditing as per the provisions of the Act.

On the other hand, the accountants within the accounting industry supported the Act, claiming that it will help strengthen the independence of the internal controls. Also, accountants believe that the SOX Act has enabled the auditing departments to gain firsthand experience in their professional duties. Furthermore, they greatly believed that the act would help reduce the elements of fraud. Moreover, the accountants think that the Act has helped gain confidence in both the corporation’s creditors and investors through their accurate financial systems and reporting.

Impact of the Act on;

  1. Corporations

The Act must be fully implemented by both the private and public listed companies and failure to do so the companies will be faced by different challenges including difficulties in raising capital. However, the Act has led to an increase of auditing costs which has burdened some companies with those significantly affected being the smaller corporations. Moreover, the Act has forced some corporations to opt for private equity as a source of funding rather than acquiring funds through the stock market.

  1. Accounting Firms

The accounting firms operations are currently overseen by an independent body, the Public Accounting Oversight Board. After the implementation of the Act, the accounting firms were required to manage the books of accounts for a period limited to five years. This weakened the existing client relationship and therefore ensuring that the financial books of companies are not cooked but portray the real state of the organization.  Moreover, the accounting firms were forced to change some of their accounting standards to be in line with the provisions of the SOX Act.

  1. Investors

The Act provisions increased funding to the Securities and Exchange Commission thus enhancing its role and ensuring that the commission provided accurate information about companies. This enabled investors to allocate their capitals in a free market system. Therefore, the Act ensured favorable and healthy competition with the stock exchange markets.

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