Essay about Sarbanes-Oxley Act Advantages And Disadvantages

The Sarbanes-Oxley Act was one of the best rules and regulations that were passed for accountants. However, it did have its advantages and disadvantages. It was signed to address all the audit failures and all the trust issues with the public accounting market and to possibly put a stop to all the corporate financial accounting scandals that were taking place during the years of 2000 and 2002. `“One who is faithful in a very little is also faithful in much, and one who is dishonest in a very little is also dishonest in much. If then you have not been faithful in the unrighteous wealth, who will entrust to you the true riches?

And if you have not been faithful in that which is another’s, who will give you that which is your own? ” (Smith, 2015). The purpose of the Sarbanes-Oxley Act (SOX) of 2002 is to set new standards for public accounting firms, corporate management, and corporate board of directors and to also be sure that fraud on the scale of Enron never takes place again (Peavler, 2015). There are many changes made. Congress had to put their foot down to make sure that public entities had good internal control. Congress wanted public entities to actually submit a completed financial statement just so it would be confirmed that there were no fraud existing.

I will be discussing the advantages and disadvantages of the SOX Act and I will also voice my final thoughts and opinions. Advantages of the SOX Sometimes overlooked in the debate about SOX are the contributions it has made in generating a greater focus on improved corporate governance and stronger ethics and compliance program (Eyden, 2012). As we all know it was developed to help us accountants and to help restore the public companies investors’ confidence level and also to protect the consumers.

The SOX was credited for strengthening two major areas of investor protection: (1) the leaders, CEO and CFO accountability for all financial disclosure and all related controls; (2) and having much better professionalism on the corporate audit committees’ part. “Compensation committees were a response to the need for a check and independent voice on decisions over executive compensation, and they have assumed an even larger significance with the rising controversy over CEO compensation” (Holcomb, 2004). These committees do not work for the companies. They were an independent committee and did not have a stake in the company.

The compensation committees are only there to help guide and to give an integrity and unbiased opinion of the compensations that are given to the CEO’s. CFO’s as well as CEO’s are held a much higher standard now than ever before. The CFOs are held accountable for their own actions; they are no longer able to use their employees as a cover-up. Anything that is used for them has to be signed by them. The CFO is now accountable for signing all financial statements and any other documents.

Once the documents are sign, they will be responsible for any financial fraud or errors that occur. This provision has encouraged the SEC to seek larger civil penalties, especially against public companies in financial reporting cases” (Rashkover & Winter, 2005). This was design to decline any fraud or errors on the financial statements. Disadvantages of SOX The Sarbane-Oxley Act was very time consuming and was a very costly process. There were a lot of guidelines that had to be followed which means there were a lot resources needed. Therefore, there was a lot of money spent.

This could have very well taken a toll on the company profits. However, one of the major disadvantages of SOX was Rule 303 – Influence on Conduct of Audits. It shall be unlawful… for any officer or director of an issuer, or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce, manipulate, or mislead an independent public or certified accountant engaged in the performance of an audit of the financial statements of that issuer for the purpose of rendering such financial statement materially misleading” (Dodd-Frank Wall Street Reform, 2002). This rule makes it where auditors cannot have undue influence over another auditor to help protect any business entity. Another disadvantage of the SOX is rule 404.

This is where the additional cost comes in to the company. This rule creates more work for the auditor. The auditor has to spend more time and do more research to give the most accurate assessment of the internal controls of the company that is being audited. The most important aspect of the proposal is the accumulation and structuring of accepted best practices for internal controls (Giordano, 2007). Final thoughts and opinion I think the passing of the SOX definitely helped made the Accounting profession better. The Accounting scandals have put a scar on the profession.

This act will bring around confidence for public accounting. Hopefully there won’t be any more fraud from the CEO’s and CFO’s with all the endowment that was added with SOX. The President of the Chambers of Commerce, Thomas Donohue stated, “The real worry is that these new rules and regulations do not create a risk factor or a timidity that is so severe that… they sit on the sidelines worrying more about rules and regulations than they do about making money.. If we have to go to a book keeping system as opposed to an accounting system then we’re going to strangle the American enterprise system,” (Oziel, 2002).

I think the SOX has definielty been revised to where the amount of fraud will be notice on the behalf of the CFO’s and CEO’s. I feel that they have become very knowledgeable and definitely more responsible of all transactions that are being taking place in their organization. Galations 6:7-8 states “Do not be deceived: God is not mocked, for whatever one sows, that will he also reap. For the one who sows to his own flesh will from the flesh reap corruption, but the one who sows to the Spirit will from the Spirit reap eternal life,” (Smith, 2015).