Sarbanes Oxley Act is focused towards identifying accounting frauds in different public companies. This paper discusses about various reasons for the introduction of Sarbanes Oxley Act and causes that has been overlooked. Causes for Sarbanes-Oxley Act Sarbanes Oxley Act is US federal law, which is established in order to set out the some standards for accounting firms, public company boards and management. These standards are established in order to overcome the problem of accounting scandals. Companies such as Enron and WorldCom have created major accounting scandals.
Sarbanes-Oxley Act protects the investors from the accounting scandals and frauds created by corporations (Vay, 2006). It has also introduced provision for the improvement in internal auditing of the firm. In addition to this financial reporting control mechanism has also enhanced, which helps in detecting the fraud easily. It has been analyzed that auditors are not able to detect the frauds easily. Manipulations in the financial records are not identified by the auditors and they rely on the false information within the financial statement.
It has been analyzed that SOX eliminate the conflict of interest by threatening the auditing firm for the non-auditing business created by the auditors. It has been analyzed that Sarbanes Oxley Act helps in identifying the person, who is individually responsible for the fraud. Earlier court is not able to identify the exact person, who is responsible for committing the crime (Fletcher & Plette, 2008). Sarbanes Oxley Act requires attest of the concern person regarding the accuracy of financial statement. It has been analyzed that frauds created by many big companies such as Enron, WorldCom, etc. has arises the need of Sarbanes Oxley Act.
Causes Overlooked in Sarbanes Oxley Act It has been analyzed that Sarbanes Oxley Act do not focused towards providing training to the employees in order to make safe communication. It does not provide proper guidance to the employees regarding disclosure of policies and other personal matters in front of general public. Sarbanes Oxley Act does also not consider polices related to ethics. It requires each and every individual, who is responsible for the fraud which is not enough to overcome the problem. In addition, Sarbanes Oxley Act should consider the ethical principles from the top level of the organization (Holt, 2007).
This act does also not include training and learning programs that helps in generating awareness among members regarding ethics. Furthermore, Sarbanes Oxley Act is very much useful in preventing the failures that will happen in future but it does not consider the causes due to which failure occurred. For example Madoff Investment Security has violated the Sarbanes Oxley Act. This act is not able to find out the individual who has made manipulations in financial statement (Fletcher & Plette, 2008). Ramification of Sarbanes Oxley Act for Short Run
Sarbanes Oxley Act has made some ramification in order to change its task and responsibilities. SOX have outsourced its information system activities to other organization. Through this ramification nature of guidelines has not been affected but suppliers need to be changed. Sarbanes Oxley Act does not consider external auditors in order to perform this type of function. Momentum in Sarbanes Oxley Act has established on the basis of Securities and Exchange Commission (SEC) and New York Stock Exchange (NYSE) has received more independence of the auditors in order to perform financial audit (Shirley, 2002).
SOX has also develop another guideline under the ramifications is audit considerations for irregularities. This guideline helps in brining substantive change in Sarbanes Oxley Act. It has been analyzed that SOX require audit work papers and other relevant information for the period of minimum seven years. These ramifications within a short period help in improving the effectiveness of Sarbanes Oxley Act. SOX are also focused towards using the internal auditors as a critical resource management. Through the internal auditors resources within the organization can be allocated easily and frauds can be controlled (Mayo, 2010).
SOX have also developed security professionals in order to handle the issues related to frauds and other internal control problems. Enron is the best example of proving the effectiveness of ramification of Sarbanes Oxley Act. Ramification of Sarbanes Oxley Act for Long Run Sarbanes Oxley Act has prepared ramifications for the long run along with short run. It has been analyzed that long run ramification is helpful in achieving the growth for long run and helps in achieving aims and objectives. Sarbanes Oxley Act is supported through academics, which helps in focusing towards the IS auditors, securities and internal auditors.
For example in order to detect the fraud in WorldCom, Sarbanes Oxley Act has focused towards using the academics, which helps in identifying the problem areas through internal auditors and securities (Shirley, 2002). Conclusion From the above discussion, it has been concluded that Sarbanes Oxley Act proved to be very efficient in solving various issues. It has also been analyzed that in order to make SOX more effective, different ramifications are also adopted for short and long term period.
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