PROS AND CONS OF THE ENACTMENT OF SOX
Where did Corporate America go wrong? Did the Government wait to long to step in? SOX, for those whom are unaware stand for Sarbanes-Oxley Act o f 2002. Brief history, Senator Sarbanes and Representative Michael Oxley presented different bills that were pasted in the House and by the Senate, then later combined together to form SOX of 2002, which President Bush signed. During pre-SOX err many companies and a few accounting firms failed due to fraudulent financial statements. Pre-SOX auditors were similar to the law enforcers, but who watch them. That is were the problem came in at. Everyone in the business world has at least heard of the Enron and Author Anderson scandals, this scandal and many others contribute to the forming of SOX. Many in the world of business probably praise SOX because investor would be able to rely more on Corporations financial statements. On the other hand, some may criticize the enactment of Sarbanes-Oxley Act.
One pro is auditor conflict of interest has reduce, if not be eliminated. Prior to SOX as mention early auditing firms, the primary financial overseers for investors, self regulated. They were also performing non-audit work for the same companies they audited. Consulting and non-audit work was bringing in the “big bucks”, while auditing was bringing in small change. Therefore, this causes a conflict of interest or lack of independence. Audits at that time would do whatever necessary for their client even if that meant changing a few numbers around to look promising for investors. After the collapse of many companies, investors feared the reliance of company’s financial statements, but to the enforcement of SOX, the reliance of corporation financial statements has increase a great deal since 2002.
Second pro for SOX is more confidence of the Boards of Directors. Prior to the Sarbanes-Oxley Act, there were Boardroom Failures. Audit Committees, are charged with establishing oversight inter working, mechanisms for financial reporting in the United States (U.S.) corporations on behalf of the investors. The scandals pre-SOX identified many members of the Board either failed to exercise good judgment, probably for self-enhancement or failed to do any research on the Corporation and therefore lack the expertise need to understand the ins and outs of the business. Implementing the Sarbanes-Oxley Act has reduced or even eliminated such act like that done by the Board. The Board members now must have some type of expertise and be independent.
Thirdly, there are the Securities analysts’ conflicts of interest. This conflict is similar to the auditors’ conflict of interest. Securities analysts buy and sell recommendations on company stocks and bonds, and investments bankers, who provide companies loans and/or handle companies mergers and acquisitions, leaving the door open to opportunities for conflicts. The problem occurs when issuing a buy or sell recommendations on a stock while providing lucrative investment banking services creates the elusion that a conflict of interest exist.
The Sarbanes-Oxley Act addresses many more issues. Here only three were mention, but many may say they are probably the most important. The important truly rely on the individual person or company.
There are always two sides to every story or in this case issue. While there are many reasons for SOX, there are just as many reasons why SOX was not a good idea. One issue critic’s address is that SOX was unnecessary and costly government interference into the corporate management, which is believed to place U.S. Corporation at a disadvantage with many foreign firms, companies and corporation. It is believed that cost will drive businesses out of arms of the U.S. into the arms of foreigners. Many can say this theory is true because since 2002 many businesses have gone overseas because it is a lot cheaper, mainly labor wise. The regulation SOX as set forth has be damaging to the American capital markets by giving many small firms as well as foreign firms to deregister from the US stock exchange and go to international exchanges. Study shows that there are a number of American companies deregistering from public exchanges has tripled during the year that SOX was enacted into law, while on the other hand only a hand full of foreign listing were added to the New York Stock Exchange.
The Sarbanes-Oxley Act was put into law to regulate the acts of the auditors, accountants, and Board members to behavior in a professional matter. Auditors are now also to be independent from the company it is auditing. SOX may have draw business to go oversea because of the cost but its as allowed investors to put their faith back in a companies financial statement , which was jeopardizes pre-SOX err.