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The Sarbanes-Oxley Act

The Sarbanes-Oxley Act

Twelve years ago, the American Congress passed the Sarbanes-Oxley Act in order to protect thousands of investors from the possible fraudulent accounting activities conducted by corporations. The strict and comprehensive reforms, as well as the Sarbanes-Oxley Act, are aimed at preventing fraud in accounting and improving disclosure of corporations’ financial information. Compliance with this legislation is binding for both small and large organizations. When the Act came into force twelve years ago, it introduced the main changes that regulate corporate governance and financial practice. Named after Oxley and Sarbanes – the major architects, the Act constituted compliance deadlines. Compliance with the legislation should not be a complicated task for any organization. Like many other regulatory requirements, it must be addressed in a methodical manner through studies and proper analysis.

Various complex factors generated culture and conditions in which a good deal of corporate frauds and accounting scandals took place in the period 2000–2002. The scandalous and dramatic frauds in such famous companies as Tyco, WorldCom, and Enron were the result of considerable issues, including conflict of interest and practices focused on incentive compensation (Hanna). After notorious corporate scandals became public in 2000, Congress decided to address this problem by enacting the Sarbanes‐Oxley Act (Weygandt, Kimmel, and Kieso 308). As the federal law of the USA, it enhanced and improved standards for thousands of firms and, in particular, accounting companies. Under the Act, all the U.S. corporations that trade publicly should guarantee adequate internal control. Reliability and effectiveness of these controls must be ensured by the board of directors, as well as executives. As a result of the Act, the accuracy of financial statements should be assured individually. Moreover, the adequacy of internal control should be also confirmed by the independent auditors. Nowadays, if companies are engaged in fraudulent activities, it will be mandatory for them to pay severe fines. Moreover, the Act enhanced the role of the governing body and outside auditors, who check the accuracy of corporate financial data. According to Weygandt, Kimmel, and Kieso, companies will be undoubtedly subjected to considerable fines if they fail to comply with the Act (308). In this case, even the company’s officers can go to jail.

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The majority of the investors assert that the Sarbanes-Oxley Act safeguards their stock investments, while others claim that they will never invest in the companies that do not follow the requirements of the Act. Despite the fact that corporate executives usually criticize expenses and time spent when following the requirements, the Act is still working well (Weygandt, Kimmel, and Kieso 308). Acccording to Burns, the Sarbanes-Oxley Act helps to build trust among investors, giving them more confidence. In addition, the Act requires and encourages various practices in the sphere of risk management, auditor independence, management accountability, and reporting internal control.

Under the Sarbanes-Oxley Act, all the companies should keep track of workers’ certifications and degrees to guarantee that their staff meets specific job requirements. Moreover, proper supervision of every worker and adequate separation of responsibilities should also be ensured. It is important to mention that, if workers start to complain of unfair dismissal and mention the company’s financial problems, human resources department should refer this case to the legal counsel and audit committee of the company (Weygandt, Kimmel, and Kieso 316).

   

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Since 2002, the Sarbanes-Oxley Act has brought global and drastic effects. The Act enhanced investors’ confidence, protection and led to significant changes in the company’s governance and control system. Moreover, audit and management committees started to focus more financial statements reporting. Implementation and regulation of the Sarbanes-Oxley Act have developed best practices and helped hundreds of companies to improve their governance, risks and control, even if they are not required to comply the Act from the technical view.

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