Benefits of the Sarbanes Oxley Act

Internal controls are measures put into place that allow for more accurate and deliberate representation of a company’s financial data. Internal controls also serve to protect a company’s assets from theft, fraud or misuse. With internal controls in place it becomes more visible to recognize if someone is stealing or misusing funds in any way. Internal controls also help to zoom in on errors or unintentional mistakes. When these errors are picked up on early it eliminates future problems for the company and its investors down the road.

The Sarbanes Oxley Act of 2002 is what enforces such internal controls of companies. This Act requires all United States companies to follow internal control guidelines and standards. Many argue that the egregious scandals such as Enron, Tyco and WorldCom gave Congress the impetus to pass such an act that has strict consequences if bypassed. Violators of the Sarbanes Oxley Act of 2002 (SOX) can be subject to large fines and even imprisonment (Weygandt, 2008). SOX holds executives responsible for the bottom line. In other words, these executives, under SOX can no longer claim they had no knowledge of any misreporting since SOX enforces these executives to have strict internal controls. Under the leadership of SOX the Public Company Accounting Oversight Board (PCAOB) was created. The PCAOB is responsible for auditing these companies to ensure they are following the SOX standards (Weygandt, 2008).

The SOX laws consist of six key principles. The first principle is to ensure there is a sole group or employee responsible for a specific task. For instance, Weygant (2008), illustrates a typical store with one person responsible for the cash register money at the end of each shift. I...

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...trols serve as the laws of the open business market today. They are in place to provide a reference point, but also to help companies maintain a balance of integrity and accurate record keeping. Having strong internal controls can make a company more valuable to its investors, stockholders, consumers as well as employees. However, there will always be exceptions or violators of the laws. Like any other area where laws have been placed to help individuals as well as the public, there will be violators. The important thing to remember is that the violators are not the majority. Just as the majority of people obey the speed limit on the highway, the majority of businesses try to do the right thing. There are times, however, when people do not follow the rules and the very fact that we have these laws means that there are consequences for those violators.