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Financial Management - Sarbanes-Oxley Act. The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board. It is one of the most important legislation acts that affect corporate governance, financial disclosure and the practice of public accounting since the USA securities laws of the early 1930 s. It is, moreover, a law that came into being in the glare of a very bright, very hot spotlight.
The Sarbanes-Oxley Act is arranged into eleven titles. This Act is mandatory and it also set a number of deadlines for compliance and the most important sections are often considered to be 302, 401, 404, 409, 802 and 906. The Sarbanes-Oxley Act came into force in 2002; it brought considerable changes into the regulation of financial practice and corporate governance. The drawers of this legislation were Senator Paul Sarbanes and Representative Michael Oxley.
At the present time there is a daunting amount of discussions around the Sarbanes-Oxley Act addressing its advantages and disadvantages. The Sarbanes-Oxley Act has significant positive company impact. The majority of restatements and mounting questions about certain corporate accounting practices have considerably shaken investors confidence in the US financial reporting system. There are too many factors that influence the investors decisions in making investments, but many attempts are being done strengthen the investor confidence.
The Sarbanes-Oxley Act act addresses many of these concerns. In July 2002 of the Sarbanes-Oxley Act stated mandatory rules of changes in corporate governance, financial statement disclosure, management compensation and auditor independence. The Commission has broad powers that it delegates to members of its staff to investigate apparent violations of the federal securities laws For the various kinds of financial misconduct companies should pay considerable fees and in several cases are withdrawn from the public trading stock exchange and responsible persons are imprisoned. SEC must help ensure that corporate managers are held accountable for corporate financial reporting. CEOs could be required to personally sign the companys tax filing, as well as the financial statements.
Loans between CEOs and their company could be prohibited. SEC requires personal certification of reports from the CEO and the CFO. Section 302 requires including the specified certification in "each annual or quarterly report filed or submitted." Section 906 of Sarbanes-Oxley requires the principal executive officer and principal financial officer of all reporting companies to certify that the report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. The certification requirement imposes criminal penalties or imprisonment for knowingly making a certification that does not comport with the requirements. The Sarbanes-Oxley Act requires a heightened level of financial transparency. Old practices of limiting disclosures in financial statements for fear of divulging competitive information will be discontinued for that sake of full disclosure and investor or lender confidence.
The Sarbanes-Oxley Act will become the standard to which courts will hold companies and directors, officers and employees. According to the Sarbanes-Oxley Act all Registered management investment companies are required to file annual reports on Form N-SAR not more than 60 calendar days after the close of each fiscal year and fiscal second quarter. Registered unit investment trusts are required to file annual reports on Form N-SAR with respect to each calendar year, not more than 60 calendar days after the close of each year. But in spite all the evident advantages of the Sarbanes-Oxley Act influence on the US economy in the whole and on the welfare of separate companies, there are also several noticeable disadvantages that go alongside with this Act. There is a Company manual, which would require shareholder approval of all equity-compensation plans and material revisions to such plans that would help the companies stay in compliance with the Sarbanes-Oxley Act. These compensation plans and arrangements include such options as significant increase cost.
There is a great impact of the cost increase on the consumers and sometimes employees of the companies that choose this compensatory option. There are a number of factors that can influence the cost increase. Companies should also install Sarbanes-Oxley Compliance IT software that will keep the company in compliance. These measures require financial expenditures that can also influence the compensatory plans of the companies. The successful implementation of this new structure also include ensuring that additional highly qualified accountants and lawyers are appointed to the companies and the Public Company Accounting Oversight Board. This additional expenses concern not solely the companies themselves, but the auditors that ensure that meaningful audit standards are adopted, and the wrongdoers are appropriately punished.
Sometimes the Sarbanes-Oxley Act also results in lowering the non-compliance risk concerns to government pricing and Sarbanes-Oxley regulations. The Sarbanes-Oxley Act application can sometimes also result in situations, when some companies are paying for the mistakes of other companies. For example, in the situation with Enron there were several factors that caused the companys record bankruptcy in 2001. Banks that lent billions of dollars to Enron failed to determine the quality of loans and the lawyers failed in their public trust by structuring the partnership scams. Bibliography: Bryce, R. , Ivins, M. Pipe Dreams: Greed, Ego, and the Death of Enron.
New York: BBS Public Affairs, 2002. A changing corporate culture: how companies are adjusting to Sarbanes-Oxley. Journal of Accountancy. March 2004: 197 Sarbanes-Oxley Act in perspective 2002 - 2003 ed. , . West Group, 2003: 1.
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Research essay sample on Financial Management Sarbanes Oxley Act
