Sarbanes Oxley Act

Sarbanes Oxley

Introduction

This paper will seek to analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. In order to so it effectively, the discussion will analyze why the new enhanced standards are necessary. Furthermore, the discussion will come to a concluding note by evaluating the benefits and costs of the SOX. There is concern about accountability in all sectors, and it is not limited to entities in the United States. Non-profit practitioners, private and government funding sources, individual donors, clients, and the general public have been involved in conversations about accountability in the Non-profit sector sparked in part by the passage of the Sarbanes Oxley Act of 2002 in the wake of the Enron, Tyco International, and WorldCom fiascos (Terlep, 2010).

Discussion

The Sarbanes-Oxley (SOX) Act of 2002 was enacted to provide necessary protection to investors in U.S. securities markets. Although the initial costs of implementing SOX can be high, the U.S. history of financial fraud is a testament to the fact that costs of inaction can be much higher. A serious loss in investor confidence can lead to capital flight potentially triggering or fuelling an economic crisis in the U.S. and abroad.

Companies that chose to comply with the stringent provisions of SOX are likely to reap the rewards through increased investor confidence: cheaper access to capital in not only U.S. exchanges and globally, improved marketing and sales presence, etc. As companies continue to adapt business practices to the provisions of the act, compliance cost have shown a downward trend. While SOX may have been seen initially as a market distorting regulatory framework, companies and the investing public continue to be better served by SOX. Globally, SOX has influenced regulatory agencies to work collaboratively in overseeing public auditors. Consequently this may aide in convergence efforts of global accounting and auditing standards despite initial indications to the contrary. Undoubtedly, investors in the global capital market will continue to benefit from additional disclosure requirements on the part of issuers and increased audit standards in the SOX era (Shakespeare, 2008).

A conflict of interest may also arise when certifying and filing financial statements. Section 302 of the Sarbanes Oxley Act requires the chief executive officer (CEO) of a corporation to certify all financial reports filed. Organizations in the nonprofit sector are required to file the IRS Form 990. CEOs should fully understand the financial situation of their organization as presented on this tax form. As these documents are made electronically available to the public on a mass scale, it is important that the board and executive officers certify their accuracy. A conflict of interest may arise if the executive certifying these documents also served on the auditing committee, and so executives should remain separate from these tasks (Norris, 2010).

Protecting Trade Secrets

Years after the enactment of the new or enhanced standards for all United States public company management and public accounting firms that the SOX required, the Sarbanes Oxley Act failed to receive ...