Sarbanes

Introduction: The Sarbanes- Oxley Act 2002 The Sarbanes- Oxley Act 2002 is one of the federal laws in the United States of America that were established with a major objective of protecting investors by improving accuracy and dependability of the so-disclosed corporate information. All boards of directors in public companies, public management, and accounting companies have to comply with the Act with regard to laws of security.Advertising We will write a custom research paper sample on Sarbanes-Oxley Act of 2002/Methods of Depreciation specifically for you for only $16.05 $11/page Learn More The Act was named after Senator Paul Sarbanes and Michael Oxley who were representatives in the lower house in the United States. Also referred to as Sarbox, the Act was passed on 30 July 2002. With its enactment, all managers of public corporations were charged with the responsibility of personally certifying the validity of any financial information to be reported (Surowiecki, 2005, p.46). The act also set very severe penalties for organization management that contravened it. In addition, the Sarbanes –Oxley Act of 2002 made it a requirement for all public corporations to ensure that independent external auditors audit their financial accounts. These auditors enable firms to have a clearer picture about the correctness of their statement of accounts (Baker Taylor, 2000 p.1). The report also recommended that managers and board of directors in public corporate organizations had to play an oversight role. Key Components of Sarbanes-Oxley Act of 2002 The key components of Sarbanes-Oxley Act 2012 include several titles with the first being the Public Company Accounting Oversight Board (PCAOB), which is regarded as title 1 with the key responsibility of acting as a watchdog to all the accounting firms set up for the public. The title performs auditing duties. Title 1 is also the branch of Sarbanes-Oxley act that registers auditors before t hey can perform public and private auditing duties in the country. It is bestowed the authority of identifying special procedures that audits must conform to when examining auditing works. It is also supposed to perform quality assurance and policy control functions (Surowiecki, 2007, p.29) of auditing in the federation. With the implementation of title1, the United States is assured of uniformity in business standards. With such similarities, the member states can therefore trade at equal levels and be able to use similar and related business documents with ease hence promoting the level of interactivity in the auditing fraternity. Finally, the title also ensures that all public auditing firms in the federation are compliant to the directives of Sarbanes-Oxley Act 2002. It is charged with the authority to guarantee the federation that the recommendations of SOX are implemented with by every auditing firm.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The next component of Sarbanes-Oxley Act 2002 is auditor independence. This component is commonly referred to as title II. The title contains details of how auditors are supposed to work independently without influence from external forces. According to this component, auditors should avoid carrying out duties in areas or field that they are likely to have conflicts of interest (Baker Taylor, 2000, p.1). Title II acts as a barrier to conflicts of interest in duties performed by auditing firms in the whole federation. Conflicts of interest result in biasness. Therefore, the quality of auditing is compromised. The title also ensures that auditing professionalism is portrayed in all auditing works in the United States. It is therefore the mandate of title II to address the issue of admitting new auditors into the auditing profession. In such processes, all requirements should be verified in order to ensure that professionalism is upheld (Surowiecki, 2005, p.46). The component spells out the relationships that should exist between different auditors and or how they should collaborate in ensuring success of auditing as a profession. Such collaboration includes rotation of audit partners in a bid to ensure quality standards in auditing. This constituent also monitors auditing firms to ensure that they purely conduct auditing duties. Regulations of this nature bar the auditing firms from offering other related services to clients of auditing (Baker Taylor, 2000, p.1) implying that auditing firms are restricted from undertaking services like accounting consultancy and business advisory among others. The third component is corporate responsibility otherwise referred to as title III. The recommendation of this component is that auditing officers must take individual responsibility for their actions. Auditing officers should ensure the accuracy of all financial documents and reports. The componen t also recommends that auditors must take responsibility for the level of completeness depicted in their financial reports. This element spells out how internal auditors and auditing committees in various corporations should relate with external auditors. From such interactions, the level of accuracy in auditing reports is boosted. Title III ensures compliance with SOX. It goes beyond enumerating the standards to be complied with to listing of the penalties for forfeiture. According to Kuschnik (2008, p.92), section 302 of title III dictates that the chief executive officer and other executive officers must verify and consent to the level of reliability in their financial reports.Advertising We will write a custom research paper sample on Sarbanes-Oxley Act of 2002/Methods of Depreciation specifically for you for only $16.05 $11/page Learn More The fourth component is enhanced financial disclosure. This component states the requirements for financial re porting. The fifth component is the analyst conflicts of interest referred to as title V that aims at ensuring that investors have confidence in security analysts’ reports. The sixth component is the commission resources and authority. The component is regarded as title VI. It indicates the actions that corporations should take to ensure that investors are confident about the reporting done by security analysts. The seventh component is studies and reports. It is also called title VII. From this component, the comptroller general is supposed to research on the quality of auditing to make a report on it. The eighth component of SOX is corporate and criminal fraud accountability. It is also referred to as title VII or corporate and criminal fraud accountability Act 2002. Under this title, various penalties on auditing offenses are spelt out for example on fraud and report alteration. The ninth component is the white-collar crime penalty enhancement also called title IX or White Collar Penalty Enhancement Act of 2002. The tenth component is Corporate Tax returns, which is also regarded as title X that stipulates that the Chief Executive Officer of corporations has to append his or her signature on reports of tax returns (Surowiecki, 2005, p.46). The eleventh component is corporate fraud accountability also referred to as Title XI. This title categorizes fraud and tempering of records as criminal offenses. Objective of Sarbanes-Oxley Act 2002 The objective of Sarbanes-Oxley Act 2002 is to ensure investor confidence in public corporations in the United States of America. The Act targeted public corporations, public accounting organizations, and their management. The act also aims at ensuring that auditors perform their duties accurately, professionally, and independently. The Act also spells out the punishment for contravening auditing standards. In doing so, investor confidence is boosted and auditing uniformity is guaranteed in the United States. Criticism Although many people have attributed SOX with the high auditing standards in the United States, various critics discredit the Act. One of the criticisms of the act is that it is an indulgence into the management of companies by the government. Critics citing this loophole argue that it puts investors in the United States at a disadvantage point when trading with foreign companies. This hitch has made the United States lose business. In fact, various companies have deregistered from the stock exchange of the United States. Other critics have blamed the Sarbanes-Oxley Act as the reason for having minimal initial public offers in 2008. The critics therefore link SOX with the 2007 economic recession in the United States (Gore, 2010, p.714). The other criticism of Sarbanes-Oxley Ac of 2002 is that the laws have not been able to prevent fraud.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The Wall street journal of December 21 2008 criticized SOX for not being able to implement its farness plan meaning that it had totally failed to achieve its major objectives. The Wall Street also criticized it for disabling young public corporations. According to this journal, the Sarbanes-Oxley Act 2002 was responsible for the destruction of the entrepreneurship spirit that existed in the United States of America before its inception. It goes further to criticize SOX for the weakening of the stock exchange business in the whole federation (Strout, 2006, p.9). For example, in 2008, only six corporations became public meaning that companies in the United States fear turning public due to the stiff regulations posed by Sarbanes-Oxley Act of 2008. The Sarbanes-Oxley Act of 2002 is also criticized for the high unemployment rate in the United States of America. This high rate of unemployment is attributed the increased fear by many investors to invest in the United States. Investors als o fear turning their companies from private to public due to the tight regulations set for all public corporations by the Sarbanes-Oxley Act of 2002. As the number of employers decrease, the number of jobs for the employees decreases. Others have attributed the location of the world top security market in Hong Kong and not in the New York City as it had been before the inception of SOX (Gore 2010, p.715). The tight regulation set by Sarbanes-Oxley Act of 2002 has made many capital investors to turn to other economies thus avoiding the United States economy. Economic Consequences of Sarbanes-Oxley Act There are various economic consequences of the Sarbanes-Oxley Act of 2002 on the economy of the United States. The first consequence is that, with the implementation of SOX, most investors have avoided the United States as a place to invest their capital as indicated by the low levels of companies that have turned public since its inception. For example, in 2001, only 87 companies turne d for initial public offer (IPO). The turnout was a very low ranking compared to the period when Sarbanes-Oxley Act was enacted. For example, in 2004, about 233 companies listed for IPO while there were more than 205 companies turning public in 2006. The other consequence of Sarbanes-Oxley Act 2002 is that it has resulted in the decline of capital market in the United States because most investors have turned to other economies like those of London and Hong Kong in a bid to avoid the tight regulations set by SOX. The argument indicates that more and more wealth has been shifted to other economies (Strout, 2006, p.9). It is also worth noting that the Sarbanes-Oxley act was blamed for the economic depression that has affected the United States since 2007 (Gore, 2010, p.714). The attribution is that, since SOX has resulted in few investors being interested with investing in the United States of America, there has been an increase in unemployment in the US. With the increased unemployme nt, the purchasing power of the United States of America has gone down. The other consequence of Sarbanes-Oxley act is that it has led to a reduced number of companies listing for Initial Public Offer (IPO) in the United States because most of the corporations are small corporations that fear turning public. This fear is attributed to the high level of regulations that came with the Sarbanes-Oxley Act of 2002. The auditing procedures set for public corporations through this act are prohibitive for small investors. Investors from foreign corporations are also shying away from investing in the American economy. Instead of investing in the United States of America, they will invest in the United Kingdom and other economies. On the other hand, there are positive consequences of the Sarbanes-Oxley Act of 2002. The first positive consequence is that it has enabled shareholders of various corporations to become the owners of such companies. This advantage changed the old trend when manager s almost worked as the only legal owners of public corporations. Instead, managers work for the shareholders in public corporations in America today. Managers of public corporations have therefore become administrators of shareholders’ resources (Crook, 2006, p.150). The other positive consequence is that the Sarbanes-Oxley Act of 2002 has boosted the confidence of investors in public corporations. This case has been made possible by creation of trust through auditing procedures. The financial reporting procedures have been made more transparent and accurate (Surowiecki, 2007, p.29) acting as a major building block for investor confidence. The fact that auditors and corporate managers are required to take personal responsibility for their reports makes the management of public corporations more transparent to the public (Crook, 2006, p.150). Managers have also become keen, professional in their way of administration, and reporting. It is also worth noting that the financial r eporting procedures that have been put in place by Sarbanes-Oxley Act of 2002 are among the legal requirements for every public corporation. The procedures for financial reporting enabled many corporations to produce accurate financial reports. The Sarbanes-Oxley Act of 2002 has also enabled the United States to discover some fraudulent companies. For example, the fraud that was unveiled from Value Line company in 2009 saved the country about 24 million dollars hence standing out as an upward trend in combating fraud as crime. The whole of this process was made possible by the standards set in the Sarbanes Oxley Act of 2002. Conclusion: Achievement of Sarbanes-Oxley Act goals The Sarbanes-Oxley Act has been able to achieve some of its goals because the Act aimed at increasing investor confidence in the United States. Today, most of the investors in public companies in the US have confidence in these corporations due to the increased transparency in financial reporting (Surowiecki, 2 005, p.46). The second aim that this Act had was to reduce fraud. The Act has been able to achieve this goal because it has already unearthed several fraudulent corporations thereby saving the economy huge sums of money. The Act aimed at restoring ethical standards in the United States’ business world. Managers and executive managers have to comply with auditing standards in administration, communication, and communication (Crook, 2006, p.150). Reference List Baker, L., Taylor, G. (2000). Author Biographies, Anthony Tarantino, PhD. Six Sigma Black Belt, Certified Sarbanes-Oxley Professional, 1(3), 1-1. Crook, C. (2006). Atlantic Monthly. Executive Privilege, 297(1), 150-153. Gore, C. (2010). The global recession of 2009 in a long-term development perspective’, Journal of International Development, 22(6), 714-38. Kuschnik, B. (2008). The Sarbanes Oxley Act: Big Brother is watching† you or Adequate Measures of Corporate Governance Regulation? Rutgers Business Law Journal, 5(1), 64–95. Strout, C., Fisher, S., Kneale, D. (2006). New Yorker. The Mail, 81(44), 9-9. Surowiecki, J. (2005). New Yorker. Sarboxed In?, 81(40), 46-46. Surowiecki, J. (2007). New Yorker. Over There, 82(48), 29-29. This research paper on Sarbanes-Oxley Act of 2002/Methods of Depreciation was written and submitted by user Princeton M. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here. Sarbanes Introduction The Sarbanes-Oxley Act of 2002 was enacted into law in 2002 to respond to the various financial scandals that were taking place in the for-profit corporate sector of the United States. The act was meant to address the abuse of finances and accounting standards by companies such as Adelphia, Enron and WorldCom where the executives of these companies defrauded their shareholders, their employees and the US economy of billions of dollars. Once it was enacted, SOX was meant to introduce major changes to the corporate governance and financial management of capital in many corporations within America.Advertising We will write a custom essay sample on Sarbanes-Oxley Act specifically for you for only $16.05 $11/page Learn More The Sarbanes-Oxley Act or the SOX act of 2002 was developed by Senator Paul Sarbanes and House Representative Michael Oxley and it contains eleven sections which outline the responsibilities of chief executive officers as well as financial controllers in managing the finances of a company (Morgan et al, 2008). Examination of the SOX Act of 2002 Under the Sarbanes-Oxley Act of 2002, companies that are publicly traded in the US are required to increase their internal financial and accounting controls after personal clarification with the chief executive and chief financial officers of the company. This is meant to strengthen the auditing, accounting and financial practices of the company. The act also requires for-profit corporations in the country to increase their external controls through enhancing the duties and responsibilities of the audit committee. The act also states that chief financial controllers and auditors need to provide supporting evidence that will be used to whistleblow on the abuse of company funds (Morgan et al, 2008). The SOX bill does not apply to privately held companies as many of the laws deal with the management of shareholder, corporate and public funds which are usually common in publicly traded companies. The new and enhanced standards within the SOX Act deal with additional responsibilities for the corporate board and chief executive officers of most organizations as well as the introduction of criminal penalties for managers caught defrauding corporations of public funds. Other enhanced standards within the act include auditor independence, enhanced financial disclosures, conflicts of interest and corporate fraud accountability. All these aspects are included within the eleven sections of the act where they analyse the specific mandates and requirements that managers need to have when conducting financial reporting (Kuschnik, 2008). Each of these sub sections are important and necessary in the financial management of publicly traded corporation as they ensure that there is accountability during the management of financial funds.Advertising Looking for essay on business corporate law? Let's see if we can help you! Get your first paper with 15% OFF Learn More For example auditor independence which falls under the second title deals with limiting the conflicts of interest that arise during audit reporting while corporate fraud accountability which falls under the eleventh title of the act deals with the identification of corporate fraud and the various penalties that are served to deal with fraud. This section also revises the sentencing guidelines that were in existence before to deal with people who defrauded companies of billions of dollars. This review was seen to be important as it would enable the Securities and Exchange Commission (SEC) to temporarily freeze any transactions or payments that were deemed to be unusual for the company (Kuschnik, 2008). In general, the act deals with ensuring the financial reports generated by auditors and finance managers within organization to develop internal control reports that can be used to determine the accuracy of the company’s financial data. The adoption of the S OX act is meant to establish a best-practice standard when it comes to the management of corporate funds. The act also changes how corporate management boards and executives interact with each other as well as with their corporate auditors and financial controllers. It also ensures that the top managers of a corporate organization are held accountable for the accuracy of financial statements released at the end of every company financial year (Litvak, 2007). Benefits and Costs of the Sarbanes-Oxley Act According to Bednanrz (2006), the costs of implementing the SOX act will exceed the benefits of the act when it is fully implemented. A survey conducted on the compliance costs of the act in various publicly traded corporations within the US revealed that the first year compliance costs would exceed $4.6 million dollars. This figure applied to all the large multinational and domestic companies in the US. Medium sized companies and smaller companies operating within the US were likely to incur significant additional costs that were projected to amount to $2 million during the first-year compliance with the SOX guidelines. These huge costs incurred during the first year would make it difficult to determine whether the Sarbanes-Oxley Act was actually working in managing corporate finances and auditing issues (Bernanrz, 2006).Advertising We will write a custom essay sample on Sarbanes-Oxley Act specifically for you for only $16.05 $11/page Learn More With regards to the benefits of the act, various financial analysts and experts noted that the borrowing costs were lower for companies that had improved their internal control measures while corporate transparency had improved within many publicly traded organizations during the first year of compliance. Section 404 of the act ensured that companies had conservative reported earnings where financial reports and statements underwent verification to determine their accuracy before being pres ented to the various stakeholders of the company. Companies that had strong internal controls were able to experience an increase in their share prices and their financial statements were more reliable (Morgan et al, 2008). Reactions of Company Executives and Changes to Accounting Practices While many legislators have praised the Sarbanes-Oxley act to be effective in dealing with financial fraud within corporations, many business managers have expressed frustration with the act. The Federal Regulation Board has been faced with a lot of complaints about the high costs that are needed to implement the act in major public corporations within the country. Executives from General Electric, Lockheed Martin and Emerson Electric were among those who spoke about the various challenges of complying with the SOX act two years after it was implemented (Bednanrz, 2006). The executives agreed that while it was too soon to determine the benefits of complying with the act, there were considerable c osts such as audit fees which were expected to increase by approximately 40% during the first year of compliance. Business managers working for BP saw the duplicate testing of internal controls to dilute the business practices of the organization as they saw it to be a frustrating exercise. They instead preferred to perform a single internal control testing exercise which would enable them to identify and document any financial issues or problems (Bednanrz, 2006). References Bednanrz, A., (2006, May 11). Executives tell regulators Sarbanes-Oxley costs exceed benefits. Retrieved from:  https://www.networkworld.com/article/2311689/execs-tell-regulators-sarbanes-oxley-costs-exceed-benefits.htmlAdvertising Looking for essay on business corporate law? Let's see if we can help you! Get your first paper with 15% OFF Learn More Kuschnik, B., (2008). The Sarbanes-Oxley Act: big brother is watching you or adequate measures of corporate governance regulation. Rutgers Business Law Journal, 64-95 Litvak, K., (2007). The effect of the Sarbanes-Oxley Act on non-US companies cross-listed in the US. Journal of Corporate Finance, 13(55), 195-228 Morgan, D.F., Green, R., Shinn, C.W., Robinson, K.S., (2008). Foundations of public service. New York: M.E. Sharpe Incorporated This essay on Sarbanes-Oxley Act was written and submitted by user Kolton Sharp to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.