Regulation of Financial Misconduct

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The prospects offered by globalization and the accrued benefits from technological innovation have greatly influenced the growth of the business realm in the 21st century world. Despite the increment in success rate of businesses and expansion to global markets, financial misconduct within organizations has threatened to derail the financial success and better public investment decisions (Onyebuchi, 2011). Sprouting from this likelihood of financial misconduct and its detrimental effect, Sarbanes-Oxley Act was enacted in 2002. The genesis of this law can be traced back to a period between years 2000 and 2002 when United States was marred with a perverted upsurge in corporate accounting scandals that tainted the United States securities market and led to loss of public funds invested in listed companies. Scandals of organizations like Adelphia, Peregrine Systems, Tyco International, and Enron among others were great primers to the need for a law regulating the financial accounting profession (Orin, 2008). This paper uses Sarbanes-Oxley Act (SOX) to delineate the main aspects of the regulatory environment for corporations aimed at protecting the public from fraud. Moreover, it will evaluate the effectiveness of SOX in taming future frauds.

Financial fraud in the context of SOX is used to denote financial reporting that omits crucial information or misreports the financial stand of an organization to deliberately portray a positive outlook of the organization (Schlesinger, 2002; SOX 2004). For example, accountants might decide to classify financial information as nonfinancial with the intent of masking an accrued loss. Whether financial misreporting is done deliberately or erroneously, it constitutes financial fraud and this is the ...

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...of the United States financial securities exchange. Overall, SOX stands strong in its capacity to tame future financial fraud cases. The highly punitive measure for financial misreporting, the sanctions for individual members of board of directors if they append signature on unauthenticated reports, requirement to review internal accounting controls annually, as well as PCAOB’s control on auditing profession are great primers to an ethical financial accounting profession within corporations projecting into the future. Despite the progress and potential to improve United States securities market, the provisions of section 404 of SOX are highly limiting to small organizations and it would be a great help for growth of economy if newly listed public companies would be allowed a grace period on which not to comply with the internal account control assessment and review.

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