Free «The Sarbanes-Oxley Act» Essay Sample

The Sarbanes-Oxley Act

The financial discipline is the foremost responsibility of the running business. Thus, the commonly accepted terms for the financial returns are extremely necessary business conditions.

The Sarbanes-Oxley Act (SOX) was approved by the U.S. House of representatives in 2002, in order to improve the accountability and transparency of the U.S. corporations. After commercial scandals at large companies, such as Tyco and Enron, SOX has become the main statute in business secure that punishes company boards with fines for its nonfulfillment. It signifies the legal system with the full amount of procedures, organizational techniques and guiding principles for the financial processes. There are eleven main sections with the description of duties and punishment in it.

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The purpose of the act is to return the trust and stability to the financial market by reduction of business fraud. It is achieved by the stringency of the requirements and measures for the financial records.

The management of the corporation is influenced by three points: the course of action about records and audits; the restriction of the falsification, alteration and destruction of documents or records; a number of penalties. There is the postulate for testing the system of internal control quarterly and reporting about it. Such benchmarking guarantees real functioning in accordance with the standards. Thus, it helps correct management actions and avoid big failures as Enron’s one.

SOX requires timely and careful disclosure of operations that makes the auditors and directors of the corporations being more responsible for their activity than before it. This act also has the purpose to protect shareholders and investors from financial deception and, therefore, their assets lose. It prevents companies from incorrect financial situation by checking the file records and written reports properly in time. Hence, companies have the opportunity to work more efficiently with business processes showing this law in action.

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Although, SOX keeps the U.S. corporations from fraud, it has a disadvantage for small business. It becomes more difficult for the small firms to flourish and grow, because of a set of accidental burdens. SOX rules can not be the same for the small public companies and the large multinational corporations. The costs of revamping and testing the system of internal control, disclosure, SEC reporting and shareholders cause not one level burden on all businesses. The act has been reformed, but the cost of compliance remains high. Besides, the audit fee has been substantially raised since the implementation of the document.

That is why, the act needs some improvement in its procedures and policies. It can be done by identifying a strategy and ways to achieve it. Such risks as fraud, mistakes, abuse should be determined and eliminated, as well.

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In conclusion, the Sarbanes-Oxley Act is considered to act as the governing law in the area of internal control for enterprises. Its purpose is similar with ISO 9001 procedures and policy, taking into account different aspects of the policy setting, financial processes and responsibility of the stakeholders, financial statements and penalties for its noncompliance. Nevertheless, it has some disadvantages that must be removed in the future.

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