Summary and evaluation of articles
The Sarbanes Oxley Act was intended to create sanity in management of corporations in the U.S. Ten years down the line, the Act has been appreciated for its successful approach in creating a state of accountability in the management of companies. Today, the citizenry and investor organizations trust corporate governance reports and statements. According to authors of the Sarbanes Oxley Act implications, changes have been witnessed in the management and the degree of independence of both auditors and the board of directors. These changes are expected to occasion a consequential improvement in the way corporations are led. In addition, the financial market is today expected to be stronger and reliable. Threats of market collapse due to fraudulent reporting have been reduced.
The degree of independence of the board of directors has been increased across organizations. In fact, the number of independent and non executive directors has consistently been on the rise. The need for the board of directors and management to ascertain the internal reports and statements through the management reports has increased the likely liability of the board of directors. They have consequently become more responsible in the execution of their duties. On the other hand, the audit scope for external auditors has tremendously increased. Auditors are expected to not only report on the true and fair position of the company, but also give additional statements on compliance by the corporation.
Clearly, the intention of the drafters of the Act was to address any mischief performed by management that is statutorily out of scope for the external auditor’s examination.
The Act has created the avenue that gives an auditor the mandate to scrutinise transactions and activities of management. The Act basically gives the yam and the knife to the management and requires responsible governance. The auditors’ position as a safeguard of the interests of owners of capital has been increased. In that token, stewardship responsibilities are executed by management with utmost care and caution nowadays. It should be appreciated that the current crop of corporate managers is more responsible compared to their counterparts from previous decades.
However, the success story of Sarbanes Oxley Act has not come without challenges. The incremental compliance requirements have in essence led to increased costs of auditing and compliance related costs. In fact, it has been opined by various authors with reasonable evidence that compliance requirements merely serve a superfluous role while increasing the costs to a substantial level in small and medium sized entities. These additional costs have consequently deprived the company of a portion of its profits. In the capital markets, it has been reported that the additional compliance regulations introduced could have resulted into a capital flight by investors from the United States market into foreign markets. This has, however, reduced after the external market jurisdictions introduced similar laws with the objective of strengthening the managerial responsibilities and corporate governance ideals.
Firm’s address of ethical issues relating to managerial accounting
A firm’s approach to ethical issues relating to managerial accounting is purely an internal process that would be subjective depending on the special interests within the firm. Ordinarily, the approach taken by the most firms involves documentation of an ethical policy that usually derives its standards from professional codes of conduct and company overall values and missions. Employees are expected to operate under the guidelines and principles as enunciated in the ethical policy document. The policy must be comprehensive in tackling all possible areas that could lead to ethical flaws.
Ethics has become a crucial component in the success of business. Companies intend to maintain high ethical standards. They have been compelled to change their ethical policies to be in consonance with the international practices and brought their laws into currency with modern developments. One instrumental tool in the development of ethical standards is the international standards organization (ISO). The organization has influenced development of ethical standards in organizations. The motivation being organizational desires to achieve ISO certification requirements. In addition, the pressures brought about by state legislations applicable in respective jurisdictions have led to an upsurge in ethical standards documentation and implementation.
In implementing ethical standards and rules, managements have created evaluations and monitory controls that essentially monitor and regulate employees. The responsibility of managers has been expanded to not only evaluate performance, but also examine issues to do with ethics. In management accounting, it is noteworthy that ethical standards have also been captured by professional accounting ethics code and the auxiliary legislations touching on the areas of financial reporting and management. Organizations tend to limit themselves to readily available ethical regulations and principles coded in professional code of ethics and applicable subsidiary legislations. The implementation process, however, is left to the managers to oversee. Consequently, various organizations apply different processes in the manner in which ethical issues are dispensed with. Some organizations have taken the trouble to establish ethics committees that are answerable to the overall board of directors. As such, the ethics committees derive their mandate from the board of directors that gives delegated responsibilities and powers in the evaluation and management of ethics in organizations. The ultimate supervisory power in most cases devolves with the overall board of management.
The limit of actions taken in remedying or addressing violation of ethical standards usually depends on the infrastructure in place and the applicable laws available. Take for instance, a case where an employee is guilty of moonlighting using the company resources and time. Management would seek to examine company moonlighting policies and the nature of contract between the company and the employee. Management would want to take action that would be anchored in the law and supported by company code of ethics. In addition, management would examine the contract to identify any instances of violations of the terms of engagement. Therefore, suffice to say that no hard and fast rules exist in addressing ethical violation cases. Rather, supervening circumstances in light of applicable legislations, code of ethics and company contractual terms would be used in solving the problem. Some of the remedies employed by companies include issuance of warnings, suspensions or permanent expulsion from employment. The strategy employed by management is triggered towards attaining ethical conformity at the workforce.
In conclusion, it should be appreciated that ethics in management is gaining currency within corporate governance. Stakeholders are pursuing various modes in addressing such contemporary issued. Introduction of legislation such as the Sarbanes Oxley Act and increased monitory roles by management only show how much ethics is needed in corporate governance. Whether the approach taken by managerial accountants is merely short terms is yet to be proved.
Works Cited
Melé, D. (2011). Management Ethics:Placing Ethics at the Core of Good Management. New York: Palgrave Macmillan.
Moberly, R. (2012, May). Sarbanes-Oxley's Whistleblower Provisions - Ten Years Later. South Carolina Law Review .
Spencer Stuart . (2012, July 30). 10 years later: Sarbanes-Oxley Act Continues to Shape Board Governance. United Business Media .
Trevino, L. K., & Nelson, K. A. (2010). Managing Business Ethics. New York: John Wiley & Sons.
