Avoiding Future Frauds with the Sarbanes-Oxley Act Essay

It is clear that the psychiatric hospital of the Sarbanes-Oxley (SOX) act in 2002 was specific to reducing future pecuniary player and imposing criminal penalties for publicly traded companies. What is not clear is whether or not the act has proved to be successful in its implementation and governance. The ecesis of the act and subsequent amendments ar intended to protect the public from put-on in the financial accounting of publicly traded corporations. In 2002, in that respect were opinions two for and against the effectiveness of SOX. More than a decade later, there are be quiet opinions on both sides of the debate. Criticism of the Sarbanes-Oxley ActThe effectiveness of the Sarbanes-Oxley act has been passing criticized since its inception. One of the major contentions is that the Sarbanes-Oxley act has no provisions to differentiate the requirements for belittled publicly traded businesses from large conglomerates (that lead and often monopolize the marketplace). Publ icly traded companies that are small in size whitethorn find the costs of conformance prohibitive to the future of their business (Coustan, 2004). Critics of SOX remember that this unnecessarily hacks the number of players in a matched marketplace. The cost of residence can be unjustified for some smaller companies. Auditing expenses gain companies to seek private investment and conk privately owned (San Antonio Express-News, 2007). Ten years ago, critics explicit fears that small, publicly listed companies magnate not meet internal control reporting requirements without substantial supererogatory expense some may bring on to delist because of it.It could mean only bigger companies go forth go public (Coustan, 2004, p. 1). In recent years, this debate continues. Critics nonoperational express concerns that Sarbanes-Oxley is overreaching and has placed unnecessaryrestrictions on corporations that postulate and will continue to unduly inhibit bodied performance until t hey are take (Brite, 2013). Another major contention of critics is that the costs of compliance for outweigh the benefits in an international marketplace. Those against SOX feel that the costs outweigh the benefits and speak out in public forums stating that the Sarbanes-Oxley has burdened the US financial market with costly rules and regulations that have reduce international matchedness (debate.org, 2014). There are those that openly trade the opinion that the implementations of regulatory overkill through the 2002 Sarbanes-Oxley act wrongfully make the guiltless suffer for the guilty (Gilto a greater extent, 2013).The reporting requirements of SOX are specific to businesses in the get together States. Unlike American business, international business does not have the very(prenominal) requirements. Regulatory compliance opposes economic costs on organizations and can adjoin their competitive advantage (Srinivasan, 2014, p. 44). Increasing the cost for American business decr eases competitive advantage in the worldwide marketplace. In addition to cost and competitive advantage, the structure of the bill has also been called into question. The approach of Appeals recently found hindrance with the wording of the amended 18 USC, citing that paragraph (b) of the statute includes the word knowingly while paragraph (c) does not (Bishop, 2013).The opinions of the Court of Appeals lends to the public opinion expressed in published CPA perspectives that SOX was a hastily assembled bill (Moran, 2013). twisty and cumbersome requirements cause confusion and frustration for companies attempting to comply with the Sarbanes-Oxley act fifty-fifty more than a decade after its implementation. Companies and lawmakers alike have had trouble over the years with the interpretation of and compliance with the act. SOX brought about galore(postnominal) changes to the track public companies had to operate, and there was some question as to how these would stand up over t ime (Moran, 2013).Positive Aspects of the Sarbanes-Oxley ActDespite complaints by critics, there are positive aspects of the Sarbanes-Oxley act that have withstood the test of time. Initial reactions have softened after smaller businesses were granted some relief in later amendments of the act. Larger businesses found that compliance with the actincreased investor self-confidence and contributions. In addition, the resultant increase in financial transparency has meliorate business relationships on many levels. First and foremost, there are many of the opinion that the enactment of the Sarbanes-Oxley act increased investor confidence and protection in the marketplace. Does Sarbanes-Oxley prevent all bad actors from defrauding investors? No law could accomplish that. entirely it can and has deterred such activity (Gillian, 2012, p. 1). Those in support of the Sarbanes-Oxley act assure that there is a positive side for investors and the businesses in which they invest. A 2005 per spective by the Financial Executives Research Foundation found that 83 part of large company CFOs agreed that SOX had increased investor confidence, with 33 percent agreeing that it had reduced fraud (Hanna, 2014, p. 2).With an increase in confidence and a perceived drop-off of fraud, investors could more confidently make intelligent business decisions on the get and sale of publicly traded companies. Those on the positive side of the SOX act believe that the do on small business have softened. Studies show that as companies become more accustomed to the costs of compliance, the expense decreases (San Antonio Express-News, 2007). In addition, the effects on smaller companies were ultimately deferred. Audit standards also were modified in 2007, a change that reportedly reduced costs for many firms by 25 percent or more per year (Hanna, 2014, p. 1). Although the costs of compliance decrease retained earnings, investors are more confident in the dependability of company reports (G illian, 2012).The cost of being a publicly traded company did cause some firms to go private, but research shows these were primarily organizations that were smaller, less liquid, and more fraud-prone (Hanna, 2014, p. 1). These modifications of the act allowed more small businesses to remain competitive in the marketplace. note relationships have also improved with increased transparency. The reduction of information dissymmetry is a direct benefit to both the company and the investors. Information dissymmetry is a situation in which one party in a transaction has more or superior information compared to another (Brite, 2013, p. 1). cyclic testing of internal controls required by SOX 404, increases transparency among internal and away stakeholders of the business. The American Institute of CPAs states on their website that section 404B has led to improve financial reporting and greatertransparency (American Institute of CPAs, 2006 2014).Conclusion and OpinionTo mensurate the effectiveness of SOX in preventing future frauds, one must take into favor the many different situations in which the legislation is applicable. Enactment of the Sarbanes-Oxley act increases corporate responsibility and sets restrictions on auditor services. This certainly reduces the potential for fraud further it does not eliminate it. From a business perspective, compliance is beneficial. The costs of implementing the requirements may be high however the benefit of increased investor confidence in a publicly traded environment is higher. There are going to be situations in which fraud is inevitable. Fraudulent wrongdoers and companies will find loopholes and the recent Court of Appeals case is evidence of that fact. As with any law, this regulation will reduce the frequency of, but not prevent, purposeful future criminal activity.ReferencesAmerican Institute of CPAs. (2006 2014). Section 404B of Sarbanes-Oxley Act of 2002. Retrieved from AICPA American Institute of CPAs http// www.aicpa.org/advocacy/issues/pages/section404bofSOX.aspx Bishop, K. (2013, June six). green Theft Auto Meets the Sarbanes-Oxley Act. Retrieved from California Corporate and Securities Law http//calcorporatelaw.com/2013/06/grand-theft-auto-meets-the-sarbanes-oxley-act/ Brite, C. (2013, June 30). Is Sarbanes-Oxley a weakness Law? Retrieved from University Of Chicago Undergraduate Law Review http//uculr.com/articles/2013/6/30/is-sarbanes-oxley-a-failing-law Coustan, H. L. (2004, February). Sarbanes-Oxley What It Means to the Marketplace. Retrieved from Journal of Accountancy http//www.journalofaccountancy.com/Issues/2004/Feb/SarbaneSOXleyWhatItMeansToTheMarketplace.htm debate.org. (2014). Do you believe the Sarbanes-Oxley Act has failed? Retrieved from debate.org http//www.debate.org/opinions/do-you-believe-the-sarbanes-oxley-act-has-failed Gillian, K. (2012, July 24). It compound Investor Protection. Retrieved from nytimes.com http//www.nytimes.com/roomfordebate/2012/07/24/has-sar banes-oxley-failed/sar