Sarbanes-Oxley Act



Sarbanes-Oxley Act

Introduction

Ethical values are necessary to be maintained in an organization that will help to effectively achieve the objectives. The companies are directed and controlled with the help of corporate governance. The present scenario provides with the examples of scandals in the corporations that have made corporate governance an important aspect in the functioning of an organization. The corporate officers became a part of the activities that are not considered ethically correct. In the financial industry, rules and policies are very important so as to ensure the company and the stakeholders remain saved from all sort of public frauds. As a result of the destruction of a number of high profile firms since the year 2002, an act was passed by Congress that is popular as the Sarbanes-Oxley Act with an aim to enhance the practices of corporate governance and thus help in gaining back the confidence of the stake holders. This essay is written with an objective to highlight the importance of the act by considering its role in the effective performance of the auditing firms as well as the impact on the overall financial sector.

Discussion

The major changes were introduced to the financial practice as well as the corporate governance by the introduction of the legislation in the year 2002. The Act got its name from the personalities Senator Paul Sarbanes and Representative Michael Oxley who were the major formulators of the Act. There are eleven titles in which the Act is arranged. Under the act, the changes have been brought in the role of the management reporting responsibilities as well as the accountabilities and duties of the auditors. President Bush has declared the Act as the reform of far reaching nature representing the business practices of America.

Effectiveness of regulations of Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 makes it mandatory for the registrants of the Security and Exchange Commission to accurately report the internal controls. It required the public companies to prepare their annual reports that will highlight the assessment of their internal controls and the financial practices used by them so as to ensure an open way of expressing the position of firm to the general public.

The corporate fraud will be minimized with the help of this Act because the companies are abided to provide the comprehensive documentation of their internal controls that will serve as an evidence for the assessment of the management and the attestation reports that are prepared by the auditors. A complete framework is provided in the Act that will help in the evaluation of the firm's practices. If the internal control is maintained ta the entity level, then it will easily be translated at the functional and application level (Sarbanes-Oxley).

A suggestion for improvement in the Act could be that just like the evaluation of information and control at the entity level, a detailed control at all level (such as the functional and application levels) should be made a part of the Act ...