Businesses are mostly affected by various problems. The SOX (Sarbanes-Oxley Act of 2002) is a crucial legislation that was passed in the United States to protect businesses, general public and stakeholders from fraudulent practices and accounting errors. It is worth noting that the U.S SEC (Securities and Exchange Commission) is mandated to administer the act, which entails publishing the rules and setting compliance. The SOX has become a major tool in the business and financial operations in the United States. In fact, SOX is streamlined to protect business operations and prevent fraudulent activities. The SOX was enacted because of the scandals that affected organizations in the early 2000s (Wilbanks, 2016). These included financial scandals in WorldCom, Enron, as well as Tyco. The act defines the time in which business should store specific records and the time frame. Business operations need to be guided by internal controls. Auditors and management are expected to report and establish the control systems in the business.
After the scandals that occurred on high –profile companies, the Congress ensured that compliance was a matter of law. The companies in the United States are expected to comply with the SOX provisions. All the companies that are listed in the New York are expected to comply with the provisions. The provisions of the Act are focused on auditor independence, corporate responsibility, financial disclosures, conflict of interest, corporate tax returns, corporate fraud accountability, white color crime penalty enhancement, as well as corporate and criminal fraud accountability (Banerjee et al., 2015). The act is arranged in eleven titles that are streamlined various issues affecting businesses.
The Securities and Exchange Commission play a crucial role. One of the main roles is to enforce various regulations for self-regulatory bodies and well as overseeing the activities of various organizations. These entities include investment advisers, public utility companies, and stockbrokers. In fact, the SEC maintain transparent, effective and efficient markets. Also, it monitors and oversees the self-regulatory organizations, securities companies, as well as stock markets. SEC enforces various federal securities laws and provides clarity on financial markets. The commission is also designed to serve the investors by protecting them from fraudulent activities (Gao, 2011). In a critical analysis, the role of SEC is to protect investors, facilitate capital formation, as well as to maintain orderly, efficient and fair markets. Sarbanes-Oxley affected the agency in various ways. The SOX began to undertake various activities under the administration of the SEC. The increasing standards of SEC often came with various failure in the system. The SOX Act of 2002 affected the SEC through legislations in the financial markets failure. In fact, Sarbanes-Oxley affected public businesses by transforming the financial system.
SOX affected the financial markets in the United States. The SEC predicted that expanding the scope of audits would lead to increased auditing costs, as well as increasing auditor’s liability. The enactment of SOX created a barrier in the financial market because it prevented foreign companies from operating in the United States. Also, medium and small sized companies opt not to go public because of the SOX rules.
Sarbanes-Oxley strengthened the enforcement of securities fraud and helped in the implementation of accounting reforms. It is worth noting that SOX created more confidence in the capital markets. It repowered and reformed the corporate board of directors. Also, SOX led to the creation of Public Company Accounting Oversight Board. These focused on the internal control procedures that did not exist in the financial sector. The changes ensured that public accounting companies include annual audit and internal control reports (Wilbanks, 2016). Through internal control systems, the public has the potential of receiving reliable information. SOX required the organization to produce reliable information that can guide the public in making decisions on securities.
Also, SOX strengthened corporate governance, which enhanced discipline among employees. Studies show that corporate governance is correlated to financial performance. This means that the SOX strengthened corporate governance, which is replicated to financial performance. The SOX strengthened the enforcement of securities fraud by deliberating on the financial statement fraud. Since SOX was enacted in 2002, there are no major corporate financial scandals. Evidence also show that incidence of securities and financial frauds have decreased. The senior management in organizations is expected to certify the accuracy and precision of financial statements and to report (Gao, 2011). The SOX have restored the confidence in the accounting profession. This is achieved by enhancing integrity in the auditing process. In fact, the audit reports should be reliable. The auditors are independent in their audit process, and act has strengthened the rules and regulations regarding auditing independence. The auditors have to report matters that affect the auditing process. Other ways that SOX have enhanced accounting reforms include in-depth analysis of accounting standards and principles. The SOX recognize the exceptions and interpretations of accounting standards. Through SOX, corporate accounting and auditing have become more transparent.
In the general perspective, enactment of SOX Act of 2002 revitalized the SEC. Since it was enacted, business operations and companies in the United States recorded low-level of frauds and financial scandals. Also, it strengthened auditing process and helped in the implementation of accounting reforms.
References
Banerjee, S., Humphery-Jenner, M., & Nanda, V. (2015). Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act. Review Of Financial Studies, 28(10), 2812-2858. doi:10.1093/rfs/hhv034
Gao, Y. (2011). The Sarbanes-Oxley Act and the Choice of Bond Market by Foreign Firms. Journal Of Accounting Research, 49(4), 933-968. doi:10.1111/j.1475- 679X.2011.00416.x
Wilbanks, D. (2016). The Sarbanes-Oxley Act. Professional Safety, 61(2), 23-25.
