Financial Reporting : The Sarbanes Oxley Act Essay

Financial Reporting : The Sarbanes Oxley Act Essay

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Investors’ confidence was shaken in the wake of early 2000 scandals that included Enron and WorldCom (Curtis, 2014). Congress hoped to instill confidence back into investors by creating an act that would create a more stringent way of financial reporting. After nearly 14 years of implementation of The Sarbanes Oxley Act, the benefits it has provided to investors are considerable, however there are areas in which SOX does lack its stringencies.
Understanding Sarbanes Oxley
Investors’ confidence was shaken in the wake of early 2000 scandals that included Enron and WorldCom. In a response to instill confidence back into investors, legislation worked to create an act that would oversee regulatory standards. The United States Congress first passed Sarbanes Oxley Act, also known as SOX, in 2002. The act was named after Senator Paul Sarbanes and House of Representatives member Michael Oxley who helped create the backbone of it and established non-negotiable deadlines for completion and compliance (Sarbanes Oxley, 2006).
The ultimate goal of the act was to help protect investors from possible fraudulent accounting activities that could take place by corporations. Several objectives of the SOX included making financial reporting more transparent to help instill investor confidence into the United States’ financial markets, establishing a more enhanced auditor independence, and improve corporate governance in hopes to reduce fraudulent financial reporting (Curtis, 2014). To protect investors, The Sarbanes Oxley Act helped mandate reforms that were strict in improving financial disclosures from companies to prevent account fraud (Sarbanes Oxley, 2006). The Sarbanes Oxley Act is broken down into eleven titles and established a public account...


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...uld eventually figure itself out. “The costs of regulation are more direct and easier to comprehend than the benefits, which are mostly indirect. So there will always be upfront concerns about regulation, which leads back to the importance of building in opportunities to measure the costs and benefits” (Hanna, 2016). Establishing a measurement to how helpful the policies are would help instill more confidence into the importance of SOX.

Conclusion

Since 2002, The Sarbanes Oxley Act has provided many benefits to businesses and has helped regulate measures to establish trust back into investors. Sarbanes Oxley has proven to be effective and working over the course of nearly 14 years. Although there have many advantages to establishing Sarbanes Oxley, there are areas of improvement that would further regulate companies and prevent fraudulent accounts in the future.

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