Custom «Sarbanes-Oxley Act» Essay Paper Sample

Sarbanes-Oxley Act

The article is a central law of the United States meant to set superior standards for all U.S. public accounts, companies and management boards in general. The laws is commonly referred to as Public corporation Accounting Reform and Investor Protection Act, or Corporate and Auditing Accountability Act in the senate and the house respectively.. Michael G Oxley and Paul Sarbanes are famous for having sponsored the bill. The bill is believed to have been as a result of immense corruption deals in prestigious firms such as Tyco international that sunk billions of dollars shaking the US security markets. This public edict of, July 30th, 2002 Contains 11 sections .It is responsible for the creation of PCAOB, auditing supervision and disciplinary board, and contains other provisions. Some of the other provisions of the act include: internal control, independence, financial disclosure and  governance.

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The act is believed to have been the most comprehensive law governing corporations and other business firms. Coming at a time when global financial crisis were beginning to have their effects the act brought about regulation in financial control frameworks. It is concerned with regulation in auditing and management of financial records in business organizations.

The edict created a regulatory and disciplinary body, PCAOB, mandated to oversee financial audit practices and records in organizations. The act provides for practices to be adopted with regard to: accounting books, auditing procedures and disclosure of financial records. Concerning auditing, it stipulates procedures to be adopted for internal auditing and financial controls. It also clearly outlines some of the duties and responsibilities of internal financial controllers and external auditors. An external auditor, for example, was charged with the duty of offering an opinion with regard to the reliability and accuracy of all financial records.

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The act charges managers of organization with the duty of constituting internal financial control framework and hireling the services of external controllers. It also requires them to compile comprehensive reports documenting the reliability and structure of the internal financial control framework. The act leaves the task of assessment including risk assessment in the hands of managers and external auditors. All managers are therefore expected by the law to exercise and oversee management of financial accounts in order to ascertain their authenticity, reliability and accuracy.

The law also contains a section of penalties to be exercised on defaulters. The penalties consider incompliance as a criminal act whose determination lies in the hands of the judicial system. The act regards manipulation of financial records and other ill mannered practices such as coerciveness and fraud as criminal offences (Colapinto and Kohn, 2004). The determination of such offences lies squarely on the commission created by the act. It act also provides for the penalties to be exercised upon fraud and exaggeration of financial records such as balance sheet earlier practiced to attract investors.

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Managerial Perspective

Adoption of the act in 2002 has impacted both positively and negatively on business organizations. Some of the effects can be categorized as follows: Cost effects, auditing, and business management effects among others. It is said to have dehorned institutions that had earlier acted as if they were above the law and brought sanity in accounting. This act brought to an end the practice of shoddy dealings meant to exaggerate profits, expenses and swindle billions of dollars from financial institutions.

Positive Impacts

Some of the merits brought about by the adoption of the law include: boosting investor confidence, elimination of corruption and manipulation, accuracy and reliability of financial records, skillful and standardized financial record keeping, enhanced auditing discipline, speedy reporting and timely auditing among others. Since its adoption, the act has continued to positively influence business practices both within and without the United States (Kuschnik, 2008. The act enhanced creation of internal financial control systems and framework bringing to an end earlier practices that had seen shareholders lose billions of dollars to shoddy deals. The reliability of financial control systems is responsible for the improved investor confidence. Prior to its adoption, managers had little to do with financial system creating loopholes for manipulative deals. The regulation has seen managers take financial responsibilities and as a result improve knowledge and skills in financial management.

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Negative Impacts

Although the act is believed to have been the best intervention of the time, it did not come without negative effects. The cost of compliance, for example, was high and required substantial amounts of resources. Cost implications are believed to have lowered revenues and decreased profits in subsequent years. The adoption of the act is also believed to have imposed damaging effects on large financial organizations and reduced their competence in stock exchange markets. The act is also criticized for having killed potential public companies by discouraging creation and thus immensely contributed to unemployment. Such impacts could have been avoided through transparent accounting.

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Although the act has greatly improved financial practices in business organizations, it has imposed retrogressive economic effects in the United States as a whole. Legal suits such as those of 2006 and 2010 challenging some aspects of the law are just a demonstration of discontent with aspects of the act. Amendment of the act is underway following a Supreme Court ruling regarding some aspects said to have contravened the constitution of the US. Its amendment if comprehensively carried out would see the US regain its status in the stock exchange. It is also likely to address some earlier concerns and should be seen as an opportunity to correct its weaknesses.

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