'Avoiding Future Frauds with the Sarbanes-Oxley Act Essay\r'

'It is transcend that the establishment of the Sarbanes-Oxley (SOX) flirt in 2002 was specific to reducing time to come fiscal contrivance and imposing criminal penalties for realityly traded companies. What is not clear is whether or not the modus operandi has proved to be successful in its implementation and governance. The establishment of the perform and subsequent amendments argon intended to protect the humans from fraud in the financial accounting of in public traded corporations. In 2002, there were beliefs both for and against the strength of SOX. to a greater extent than than a decade later, there ar simmer down stamps on both positions of the debate. Criticism of the Sarbanes-Oxley modus operandi\r\nThe persuasiveness of the Sarbanes-Oxley act has been highly criticized since its inception. One of the major contentions is that the Sarbanes-Oxley act has no provisions to differentiate the requirements for petite publically traded businesses from larger co nglomerates (that lead and often monopolize the grocery storeplace). publicly traded companies that atomic number 18 small in size may find the address of entry prohibitive to the upcoming of their business (Coustan, 2004). Critics of SOX believe that this unnecessarily adulterates the number of players in a competitive marketplace. The cost of compliance go off be excessive for any(prenominal) smaller companies. size uping expenses suffer companies to seek private investment and beat in camera owned (San Antonio Express-News, 2007). Ten eld ago, critics expressed â€Å"fears that small, publicly listed companies might not meet inseparable go through reporting requirements without substantial additional expense; some may have to delist because of it.\r\nIt could mean only big companies depart go public” (Coustan, 2004, p. 1). In juvenile course of instructions, this debate have-to doe withs. Critics still express concerns â€Å"that Sarbanes-Oxley is ove rreaching and has located unnecessary restrictions on corporations that have and will continue to unduly inhibit corporate performance until they be removed” (Brite, 2013). Another major contention of critics is that the costs of compliance for outweigh the gain grounds in an international marketplace. Those against SOX know that the costs outweigh the benefits and speak out in public forums stating that the â€Å"Sarbanes-Oxley has burdened the US financial market with costly rules and regulations that have reduced international competitiveness” (debate.org, 2014). There are those that openly share the opinion that the implementations of regulatory overkill through the 2002 Sarbanes-Oxley act â€Å"wrongfully befool the innocent suffer for the guilty” (Gilmore, 2013).\r\nThe reporting requirements of SOX are specific to businesses in the United States. Unlike American business, international business does not have the analogous requirements. â€Å"Regula tory compliance opposes economic costs on organizations and can affect their competitive value” (Srinivasan, 2014, p. 44). potpourri magnitude the cost for American business decreases competitive advantage in the worldwide marketplace. In addition to cost and competitive advantage, the structure of the bill has also been cal direct into question. The solicit of Appeals recently found difficulty with the wording of the revise 18 USC, citing that â€Å"paragraph (b) of the statute includes the word â€Å" knowingly” while paragraph (c) does not” (Bishop, 2013).\r\nThe opinions of the Court of Appeals lends to the public opinion expressed in published certified public accountant perspectives that â€Å"SOX was a hastily assembled bill” (Moran, 2013). Involved and clumsy requirements cause confusion and frustration for companies attempting to comply with the Sarbanes-Oxley act even more than a decade after(prenominal) its implementation. Companies and l awmakers alike have had difficulty over the years with the interpretation of and compliance with the act. â€Å"SOX brought about galore(postnominal) changes to the direction public companies had to operate, and there was some question as to how these would stand up over time” (Moran, 2013).\r\n arbitrary Aspects of the Sarbanes-Oxley Act\r\nDespite complaints by critics, there are positive aspects of the Sarbanes-Oxley act that have withstood the test of time. sign reactions have softened after smaller businesses were tending(p) some relief in later amendments of the act. large businesses found that compliance with the act increased investor impudence and contributions. In addition, the resultant increase in financial transparence has improved business relationships on many levels. First and foremost, there are many of the opinion that the enactment of the Sarbanes-Oxley act increased investor impudence and breastplate in the marketplace. â€Å"Does Sarbanes-Oxley p revent all bad actors from defrauding investors? No law could accomplish that. But it can and has deterred such(prenominal) activity” (Gillian, 2012, p. 1). Those in support of the Sarbanes-Oxley act check out that there is a positive side for investors and the businesses in which they invest. â€Å"A 2005 survey by the Financial Executives question Foundation found that 83 share of large caller CFOs agreed that SOX had increased investor confidence, with 33 percent agreeing that it had reduced fraud” (Hanna, 2014, p. 2).\r\nWith an increase in confidence and a perceived reduction of fraud, investors could more confidently make intelligent business decisions on the bribe and sale of publicly traded companies. Those on the positive side of the SOX act believe that the effects on small business have softened. Studies show that as companies become more accustomed to the costs of compliance, the expense decreases (San Antonio Express-News, 2007). In addition, the effe cts on smaller companies were ultimately deferred. â€Å"Audit standards also were modified in 2007, a change that reportedly reduced costs for many firms by 25 percent or more per year” (Hanna, 2014, p. 1). Although the costs of compliance decrease retained earnings, investors are more confident in the reliability of order reports (Gillian, 2012).\r\nâ€Å"The cost of being a publicly traded company did cause some firms to go private, but query shows these were primarily organizations that were smaller, less liquid, and more fraud-prone” (Hanna, 2014, p. 1). These modifications of the act allowed more small businesses to remain competitive in the marketplace. moving in relationships have also improved with increased transparency. The reduction of information asymmetry is a direct benefit to both the company and the investors. â€Å"Information asymmetry is a situation in which one party in a transaction has more or sterling(prenominal) information compared to ano ther” (Brite, 2013, p. 1). Periodic testing of internal controls required by SOX 404, increases transparency among internal and outer s learnholders of the business. The American Institute of CPAs states on their website that â€Å"section 404B has led to improve financial reporting and greater transparency” (American Institute of CPAs, 2006 †2014).\r\nConclusion and Opinion\r\nTo evaluate the effectiveness of SOX in preventing future frauds, one must take into consideration the many different situations in which the statute law is applicable. Enactment of the Sarbanes-Oxley act increases corporate responsibility and sets restrictions on auditor services. This certainly reduces the potential for fraud; just it does not eliminate it. From a business perspective, compliance is beneficial. The costs of implementing the requirements may be high; just the benefit of increased investor confidence in a publicly traded environment is higher. There are outlet to be sit uations in which fraud is inevitable. Fraudulent wrongdoers and companies will find loopholes and the recent Court of Appeals case is narrate of that fact. As with any law, this regulation will reduce the frequency of, but not prevent, purposeful future criminal activity.\r\nReferences\r\nAmerican Institute of CPAs. (2006 †2014). Section 404B of Sarbanes-Oxley Act of 2002. Retrieved from AICPA: American Institute of CPAs: http://www.aicpa.org/advocacy/issues/pages/section404bofSOX.aspx Bishop, K. (2013, June six). Grand stealth Auto Meets the Sarbanes-Oxley Act. Retrieved from California Corporate and Securities fair play: http://calcorporatelaw.com/2013/06/grand-theft-auto-meets-the-sarbanes-oxley-act/ Brite, C. (2013, June 30). Is Sarbanes-Oxley a Failing Law? Retrieved from University Of Chicago Undergraduate Law Review: http://uculr.com/articles/2013/6/30/is-sarbanes-oxley-a-failing-law Coustan, H. L. (2004, February). Sarbanes-Oxley: What It Means to the Marketplace. Re trieved from diary of Accountancy: http://www.journalofaccountancy.com/Issues/2004/Feb/SarbaneSOXleyWhatItMeansToTheMarketplace.htm debate.org. (2014). Do you believe the Sarbanes-Oxley Act has failed? Retrieved from debate.org: http://www.debate.org/opinions/do-you-believe-the-sarbanes-oxley-act-has-failed Gillian, K. (2012, July 24). It enhance Investor Protection. Retrieved from nytimes.com: http://www.nytimes.com/roomfordebate/2012/07/24/has-sarbanes-oxley-failed/sar\r\n'