Although the Sarbanes-Oxley Act was passed by Congress for positive reasons, there are many disadvantages that come along with it. A major issue is the cost of regulation, especially for smaller companies. Expanding internal controls delay the timeliness of financial statements by adding processing time to accounting functions. To follow the SOX, companies would need to separate duties, causing an increase in personnel. The SOX also calls for additional audits which increase business costs.
“Ponemon Research puts the cost of compliance at $3.5 million for the 46 businesses they studied.” (ShredNation, 2012) As the quote states, adhering to compliance including implementing external and internal auditors is expensive. Although the costs may be high, non-compliance can be just as costly in a negative way to the organization. Non-compliance can cause loss of positive reputation, loss of investors and shareholders, loss of customers, decreases in stock prices, lack of revenue, state and federal regulation fines, corporate scandals, financial bailouts, and last failure and closure of the organization. These risks are all costly to an organization and can cause ultimate failure. Adhering to compliance is crucial to prevent companies from failing and taking huge financial loses.
Companies want to put their best foot forward when they release financial statements. This has led many companies to submit false financial statements that misinform investors and creditors. Often times this is done deliberately and intentionally. According to Cooper (2005), this might involve: - The falsification, alteration or manipulation of material financial records; - Material, intentional omissions or misrepresentation of events, transactions, accounts, or other significant information from which financial statements are prepared; - Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report and disclose economic events and business transactions; or - Intentional omission of disclosures or presentation of inadequate disclosures regarding accounting principles and policies related financial amounts. According to Quffa (2003) financial statement fraud has disastrous effects and these include: • Undermines the reliability, quality, transparency, and integrity of the financial reporting process • Jeopardizes the integrity and objectivity of the auditing profession, especially auditors and auditing firms • Diminishes the confidence of the capital markets, as well as market participants, in the reliability of financial information •
The offenses are harmful to not only businesses in the United States of America but to the world of business as a whole and are unacceptable. If the law had been in place, many shareholders would have been safeguarded but numerous investors lost their lifetime savings by company insiders. The corporate world is a much more secure place with regards to investing with all of the changes and modifications which are now enforced. I still think there are other actions which can be taken to protect shareholders even though the modifications have significantly improved the procedure. Businesses must develop an ethical balance so as not to take advantage of unknowing shareholders who have invested their lifetime
In addition, if a CEO/ CFO do not meet these requirements they can be criminally sanctions; which could include jail time reach up to 20 years if found guilty of willful neglect. Furthermore, a CEO/ CFO must understand the implications of section 303 in that improper influence or misleading of auditors can also render finical statements misleading, it is therefore to the CEO/CFO’s advantage to hire and retain highly capable and ethical auditors to ensure the company’s accuracy financial reporting, it is the CEO/CFO’s responsibility to set up “internal control over financial reporting” (White & Case LLP, 2003). The auditors responsible must ensure the internal controls
401(K) has become ineffective because of the corruption of big business, the misunderstanding of and as a result a mishandling of the 401(K) accounts, and its correlating dependency on the market’s success. Making profit is important to people. Most of all, improving the bottom line is the primary objective for major companies. “For Robert Shively, learned that his employer, Occidental Petroleum Corporation, or also-known-as Oxy Pete,” wanted to forgo the guaranteed-employer pension plans for the less demanding 401(K) system where it is based on contributions from employee’s pay rather than from the employer’s profit. This forces the employee to save without any effort but, due to this, workers began to neglect the social security and entirely dropped the use of the original pension plan.
SOX Reforms Corporate America The Sarbanes-Oxley Act of 2002 (SOX) enacted July 30, 2002 introduced significant changes to financial practice and corporate management regulation. Passed in the wake of numerous scandals SOX is a complex piece of legislation that requires companies to make major changes to bring their organizations into compliance (Bumgardner 2). Many believe this act has not proven worthy and will not change effect in the business world, but I think this act will help businesses and outside investing. The act holds top executives personally responsible for the accuracy and timelines of their company’s financial data — under threat of criminal prosecution. Sox address weaknesses with internal issues, requiring yearly
6 Social Responsibility within Company Q Social Responsibility within Company Q Daniel R. Beckerman Western Governors University WGU Student #000322976 For any given business, the greatest potential for revenue growth can be found through a mix of focusing on providing for the shareholders, as well as thinking of the stakeholders as a whole. This means focusing past short term profits and creating a plan that demonstrates a measure of social responsibility. Business reputation goes a long way towards creating how large a company’s customer base is going to be, and giving the appearance of not caring about the community can lead to a loss of customers and a loss of additional revenue in the long run.
Reporting Practices and Ethics Paper HCS/405 Reporting Practices and Ethics Paper In the world of financial reporting, numbers can make or break a corporation. Growing competition and diminishing profits are driving some companies to compromise their ethical standards and falsify corporate financial data. These deceptive accounting methods can cause a once thriving corporation to crumble into dust. Ethics must be at the forefront of any healthcare accounting department. Fiscal transparency within the income statement, balance sheet, cash flow statement, and statement of equity must all reflect honest and integral data in order maintain the financial stability of the corporation.
The people thought that they were living great, because their stocks were doing so well. Because of this thinking, they used their “great” stocks as collateral for the banks. The people who did this were very vulnerable. Even the smallest drop in their stocks would severely hurt them economically (Document G). When people realized this, they quickly got rid of their stocks.