Get help now

The Effectiveness of Regulations

  • Pages 5
  • Words 1015
  • Views 466
  • dovnload

    Download

    Cite

  • Pages 5
  • Words 1015
  • Views 466
  • Academic anxiety?

    Get original paper in 3 hours and nail the task

    Get your paper price

    124 experts online

    There used to be a time in the United States when there were no regulations in place to protect the public from corporate greed and deceit. Publically traded companies used the auditors they had on retainer to audit their financial statements. There was no reason to believe that such large corporations would allow their share holders to fall. That fairytale came to an end with the discovery of the Enron and WorldCom scandals. These nightmares made the public “wake up” and realize that nothing was required of these companies to prove their statements or protect their shareholders.

    Regulation was needed if consumer confidence was to be bolstered. What should be done to prevent another scandal like Enron or WorldCom from happening again? Kirk Hanson, executive director of the Markkula Center for Applied Ethics states that the lack of truthfulness by management and the dual role of the Enron auditor were partly to blame for something like this happening. (Hanson, 2002) With these concerns in mind, legislation was passed in 2002 that introduced major changes to how corporations were governed and how financial practice is regulated (Addison-Hewitt Associates, 2006).

    The architects of the Act were Senator Paul Sarbanes and Representative Michael Oxley who along with the legislation, created deadlines for compliance. The Sarbanes-Oxley Act (SOX for short), cannot be briefly summarized so here are some highlights. All publically traded companies, large and small, are required to comply with Sarbanes-Oxley Act. The Securities and Exchange Commission oversees the compliance of publically traded companies with the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board regulates the accounting firms.

    The Sarbanes-Oxley Act contains eleven titles but the gist of the Act states that all financial statements will be audited by a non-affiliated auditor and the corporate Chief Executive Officer and Chief Financial Officers will be held accountable for any misstatements. This one Act took away the defense of “I didn’t know that was going on”. The overall effectiveness of the Sarbanes-Oxley Act is very good. Since the adoption of the legislation, corporations are complying with little friction.

    It has proven a valuable tool in helping Chief Executive Officer identify issues that they were not aware of. If one thing could be improved upon, I would suggest all auditors be certified by the Securities and Exchange Commission and the Public Company Accounting Oversight Board for Sarbanes-Oxley Act audits. Impact on Auditing Firms Since the Sarbanes-Oxley Act legislation has been passed, auditing firms have seen a dramatic increase in demand for their services. Along with the great demand comes a great liability.

    Auditors are now held responsible for mistakes as well as Chief Executive Officers and Chief Financial Officers. Because of the higher liability risk associated with Sarbanes-Oxley Act audits, a higher degree of experience has become a requirement for auditors. Simple mistakes are not tolerated and can now become very expensive. The Public Company Accounting Oversight Board oversees the accounting profession in relation to the Sarbanes-Oxley Act. They have put forth guidelines that must be followed by auditors and have established penalties for failure.

    The Public Company Accounting Oversight Board has helped the auditing profession with these guidelines because if they are followed correctly, corporations cannot use an auditor as an excuse to commit fraud. Auditors can even use the argument that they followed procedure set forth by the Public Company Accounting Oversight Board when doing an audit and as long as they performed the audit according to those standards, liability is minimal. Self Regulated or Government Regulated Some people think that the government regulates too much of our lives.

    They believe that since Certified Public Accountants have a high moral code and a high standard of ethics, they do not need to be regulated by the government. I, on the other hand, believe in transparency. If you have nothing to hide then government regulation is not a problem. I do see the petty fees and bureaucratic red tape as a source of constant frustration but government regulation keeps people honest. Another positive fact involving government regulation is a consistent set of rules for everyone. Predictions

    I predict that the Sarbanes-Oxley Act will have a positive effect on corporate fraud by closing the loopholes that upper management has traditionally taken advantage of. Michael J. Gallagher, chairman of the Center for Audit Quality’s Professional Practice Executive Committee, believes that the Sarbanes-Oxley Act has been successful in reaching its objectives by reducing financial fraud (COHN, 2012). I happen to agree with how Mr. Gallagher feels about the effects of Sarbanes-Oxley Act to date. Nothing is going to eliminate the intentional fraud that is taking place on a daily basis.

    If a company is trying to hide something, they most definitely will find a way. Chief executive officers without a conscience will always make a bad name for hard working, honest companies that happen to be in big business. With the introduction of Sarbanes-Oxley Act and the guidelines that it sets forth, many companies are realizing that they have been making mistakes unwittingly. I believe that these companies are the biggest contributors to the success of the Sarbanes-Oxley Act by helping to bolster the confidence of the public investor.

    At last the general investing public has something to believe in and that has their best interest at heart. If the Sarbanes-Oxley Act had not passed congress and become enacted, the stock market probably would not have come back. The financial structure that we base our live on requires that this measure of reassurance work to keep us going so it cannot fail.

    References

    Addison-Hewitt Associates. SARBANES-OXLEY ACT , (2006). A guide to the sarbanes-oxley act. Retrieved from B2B Consultancy website: http://www. soxlaw. com/index. htm Arens, A. Elder, R. , & Beasley, M. (2010). Auditing and assurance service: An integrated approach. (13 ed. ). Upper Saddle River: New Jersey COHN, M. (2012). Congress examines 10-year legacy of sarbanes-oxley. Accounting Today, Retrieved from http://www. accountingtoday. com/news/congress-sarbanes-oxley-anniversary-63434-1. html Hanson, K. (2002, March 05). Interview by A. Nakayama [Personal Interview]. Enron. Lessons from the Enron Scandal, Santa Clara, CA. , Retrieved from http://www. scu. edu/ethics/publications/ethicalperspectives/enronlessons. html

    This essay was written by a fellow student. You may use it as a guide or sample for writing your own paper, but remember to cite it correctly. Don’t submit it as your own as it will be considered plagiarism.

    Need a custom essay sample written specially to meet your requirements?

    Choose skilled expert on your subject and get original paper with free plagiarism report

    Order custom paper Without paying upfront

    The Effectiveness of Regulations. (2017, Jan 21). Retrieved from https://graduateway.com/the-effectiveness-of-regulations/

    Hi, my name is Amy 👋

    In case you can't find a relevant example, our professional writers are ready to help you write a unique paper. Just talk to our smart assistant Amy and she'll connect you with the best match.

    Get help with your paper
    We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy