In 2002, the adoption of the Sarbanes Oxley act transformed the performance of the business units at the market and influence the business ethics of the companies. The author of the article “The Unexpected Benefits of Sarbanes-Oxley” stipulates that initial aim of the adoption of the legal acts was to overcome the fraud in order to improve the credibility of the companies (Wagner, 2006). First of all, all the companies within the territory of the country has faced the necessity to report about its activity to the Public Company Accounting Oversight Board, while the majority of the business units were not satisfied with such approach due to the fact that some of them acted in the honest manner. The provisions of the newly adopted legislation establish the practice on conduction the internal control procedures that allow to control the performance of the company in the honest and reasonable manner. At the same time, the created oversight board has the power to exercise the surveillance over the public accounting business units on their annual profit and expenses. Therefore, the internal control over the financial reporting has been significantly strengthened.
However, the companies should have to spend more expenses related to the execution of the provisions of the Sarbanes Act due to the fact the new controlling systems should be established at every enterprise for the maintenance of the activity of the company. Despite this fact, there are a lot of benefits received by the companies in the business ethic dimension. For example, in case the business unit complies with the provisions of the act, its reputation is improved in the market in such a way that the investors consider this company as the reliable one in contrast to others. At the same time, the companies enter the competition to act proactive in the market in order to implement the framework created by the Sarbanes Act.
Simultaneously, the enactment of the act forces the managers of the companies to reform the internal structures in order to improve the position of the company in the market. In addition, the act allowed to strengthen the control environment by several companies in the USA. For example, such major rival in the food industry and PepsiCo has recognized the importance of creation the transparent and caring policy for its staff in order to improve the understanding of the final goals and objectives that should be achieve by the business unit in general. Simultaneously, the survey provided in the premises of the company confirmed that the employees recognize the whole range of the responsibilities and functions that they should perform. In this respect, the strong control environment allows for the company to act honestly as this desire is supported on all levels of the production.
Meanwhile, the Sarbanes Act highlights the importance to improve the correspondence flow within every company. With implementation of mandatory processing systems to be established at every company, the employees has begun to spend less time on the circulation and processing of the documentation of the company pertaining to the financial statement, accounting, etc. Besides, the companies have managed to increase the audit committee involvement that was not appropriate before the adoption of the act. Since the provisions of the legal instrument stipulated the impossibility to hire the external and independent audit companies for the purposes to conduct the audit of the company, the business units have faced the necessity to develop this practice on the internal level. In fact, this approach has allowed to increase the transparency in the actions of the company.
Finally, the adoption of the Sarbanes Act pushed the companies operating in the different industries to act in the reasonable manner in order to avoid the penalties that could be imposed on the company for the violation of the honest practice developed by the provisions of the Sarbanes Act. Moreover, the credibility of the majority of the companies and the transparency in the actions have been improved that lead to the creation of several benefits accrued for the company.
References
Wagner, S. (2006). The Unexpected Benefits of Sarbanes-Oxley. Harvard Business Review. Retrieved 3 February 2016, from https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley
