The concepts and principles related to study of a management issue
The Concepts and Principles Related To Study of a Management Issue
Management theories have been developed by scholars to combat administrative matters in corporate companies, but they have not been successful enough to fight issues such as fraud, embezzlement, poor leadership among other issues (Larry, 2016). It is apparent that the government of the United States had to find ways to combat these management problems to avoid scandals that were devastating to the economy. Even with developed policies, the managerial sector is still facing diverse challenges that need strategies that target individual leaders and employees. According to Larry upon the development of Sarbanes-Oxley Act of 2002, the US government though that the act will be successful in addressing various management issues especially in the area of accounting and finance where most fraud cases take place (2016). The paper shall discuss the role of the act in minimizing fraud and other management cases in the US.
The Sarbanes-Oxley Act was enacted in 2002, to combat fraud, improve liabilities in the business entities, improve financial reporting, and restore investor confidence in the business world (Larry, 2016). However, the Act was not received well by management executive because it appeared that some of its sections of the Act felt that they were being subjected to similar compliance burdens that were negligent and dishonest(Sarbanes-Oxley Act, 2006). Smaller companies complained that millions of dollars spent running monopolization of executive's time, particularly in small companies.
Of particular concern to this topic is the section 404 of the SOXs Act where it holds the management of a company responsible for ensuring that there are sound and controlled structures for financial management and assessing the effectiveness of the strategies they have implemented towards the activity (Larry, 2016). Another responsibility is tasked to the auditor, and that is to attest how to sound the management conducts assessments and reporting of the overall financial system (The Unexpected Benefits of Sarbanes-Oxley, 2006). In the quest to align management in firms; the act also charges audit firms to carry out inspections in companies to establish how they carry out their financial managements, and it establishes standards for financial management for that company.
The Act also ensured that the audit committees are strengthened and the corporate governance in general. It requires all the audit committees too be voted in any company and to ensure that standards are met, it requires those committees to be independent of management of that company (The Unexpected Benefits of Sarbanes-Oxley, 2006). It also requires independent audit committees to be directly accountable for selection, oversight, and compensation of the external auditor activities rather than management of the firm. That way it ensures that management does not interfere with outcomes of the audit activities. The audit committee is also required to disclose if there is a financial expert in the team. That way it encourages transparency in the panel (Sarbanes-Oxley Section 404, 2008). The act also requires the corporate companies to enhance transparency, accountability in the executive management and ensure consumer protection.
Upon implementation of that requirement, the company often assures the investor and hence gains his/her confidence in the company (The Sarbanes-Oxley Act, 2012). It requires that companies disclose any information that touches on operations of the company including client lists, fees and also quality procedures. The financial reports are also essential to be certified by chief executive officer and the senior financial official of that company. The corporate and directors are prohibited from misleading auditors either internal or external (The Sarbanes-Oxley Act, 2012). It also protects the company whistleblowers that are employed in corporations who report on auditing, accounting, and internal control indiscretion.
The act also enhances auditor independence to carry out the activities in the company that he/she is assigned to audit. It also protects them from given extra non-audit services to the audited companies (Sarbanes-Oxley Act, 2006). It also requires company's audit board to pre-endorse all audits, and non-audit activities carried out by the auditors (The Unexpected Benefits of Sarbanes-Oxley, 2006). It is also that audit rotations are performed every five years other than seven years. Upon analysis of this Act, it is clear that when there is a strong independent audit committee in the company, it can face out many scandals associated with poor financial management and also protection of human resource personnel. It is clear that the act aims to ensure that there is a smooth flow of managerial activities within a firm other than when the company is acting independently of the law.
It is apparent that even with the passing of the SOXs Act, there are several gaps that the act has not addressed adequately, for instance, the issue of accounting (Sarbanes-Oxley Section 404, 2008). It is not certain that the Act will accomplish its goal of deterring fraud from companies and financial institutions in the US (The Sarbanes-Oxley Act, 2012). Financial and accounting experts are not confident that the act will be effective enough if nothing is done to improve the act by for instance closing the loops that were left open by the passing of the act.
If the Congress does not rectify the loops that are lagging the Act from being operational, it is likely to face the financial crisis that hit the country hard in 2007/8. Should more corporate candles occur in the next few years, the Congress would be forced to come up with more complex strategies of handling fraud in companies and other business institutions (Sarbanes-Oxley Section 404, 2008). It is also the responsibility of businesses to ensure that the other provisions that SOXs Act requires of them are fully implemented to manage not only fraud but also protect human resource personnel from exploitation.
References
Larry Bumgardner, J. (2016). Reforming Corporate America - How does the Sarbanes-Oxley Act impact American business? | Graziadio Business Review | Graziadio School of Business and Management | Pepperdine University. Gbr.pepperdine.edu. Retrieved 18 April 2016, from http://gbr.pepperdine.edu/2010/08/reforming-corporate-america/
Sarbanes-Oxley Act: HR’s Role in Ensuring Compliance and Driving Cultural Change. (2006). BNA. Retrieved 18 April 2016, from http://www.adp.com/workforce-management/docs/whitepaper/SOX_PAPER_ADP_525.pdf
SARBANES-OXLEY SECTION 404: A Guide for Management. (2008). The Institute of Internal Auditors. Retrieved 18 April 2016, from https://na.theiia.org/standards-guidance/Public%20Documents/Sarbanes-Oxley_Section_404_--_A_Guide_for_Management_2nd_edition_1_08.pdf
The Sarbanes-Oxley Act at 10 Enhancing the reliability of financial reporting and audit quality. (2012). EY (Ernst & Young). Retrieved 18 April 2016, from http://www.ey.com/Publication/vwLUAssets/The_Sarbanes-Oxley_Act_at_10_-_Enhancing_the_reliability_of_financial_reporting_and_audit_quality/$FILE/JJ0003.pdf
The Unexpected Benefits of Sarbanes-Oxley. (2006). Harvard Business Review. Retrieved 18 April 2016, from https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley
