Advantages fraud within accounting activity from businesses and corporations.

Advantages
and Disadvantages of Sarbanes-Oxley

Kelsey
Dobbins

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Liberty
University

Acct
612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sarbanes-Oxley was a tax
law passed in 2002 that helps close the gaps on corporate fraud. The act was
created by Senator Paul Sarbanes and Congressman Michael Oxley. This act helps
to protect investors from the potential of fraud within accounting activity
from businesses and corporations. This act helps bring many advantages into an
organization. One main advantage of the Sarbanes-Oxley act is that it helps
strengthen the core environment. Maintaining a strong core environment is a
crucial part in keeping a company afloat. In a sense, the employees of an
organization is what makes an
organization successful or unsuccessful. Good governance is a mixture of the
enforceable and the intangible. Organizations with strong governance provide
discipline and structure; instill ethical values in employees and train them in
the proper procedures; and exhibit behavior at the board and executive levels
that the rest of the organization will want to emulate. (Section 404(b) of
Sarbanes-Oxley Act of 2002) (n.d.). Leaders within the organization should do
just that- lead. They should lead with good examples that the rest of the
company looks up to.  The Sarbanes-Oxley
act really puts into light the sincerity of honesty and good ethical practices.
Since this act was passed, many organizations are taking this as an opportunity
to educate their executives and employees. Many are enforcing training and
testing that emphasizes the importance of being honest and having ethical
values. Another advantage to the Sarbanes-Oxley act is that is helps
organizations take a step back and really look into each of their departments
to find ways to improve and be more ethical. For example, companies could dig
into the most basic accounting functions to ensure that each department is not
only doing their job efficiently, but correctly. For example, the accounts
payable department. Executives could dig into to the daily functions of the
accounts payable department to ensure that the entries they are doing are being
booked into the correct department. They could test the internal controls by
ensuring that the person creating a check batch isn’t the same person reviewing
the printed checks. They could ensure that the person doing online decisioning
with the bank isn’t the same person running the check run. This process would
lead to another advantage, which would be more efficient financial reporting.
If processes are tighter in every accounting department, then naturally, more
efficient financials will follow. (Schmoeller,D)(
2017)

Sarbanes-Oxley
is not omitted from disadvantages, as there are a few that could negatively
impact several companies greatly. “The first year of Sarbanes-Oxley was costly
and no doubt painful for many, particularly for small- and micro-cap
companies.” (Cunningham, C.)(2013) Section 404 insists that publicly-held
company’s auditor to attest to, and report on, management’s assessment of its
internal controls.  “Opponents argued
that Sox would be detrimental to the economy; that the burden would fall too
heavily on smaller public firms; that the costs of implementing Sox with all
its requirements would far exceed the benefits gained” Cunningham, C.)(2013).
Smaller companies blatantly have a smaller staff. With this new addition,
many companies found themselves working ample amount of overtime and having to
hire in additional staff to comply to the new act. Another disadvantage is that
even though Sarbanes-Oxley has a very strict set of rules, there is no way set
way to implement them. This leaves companies to have to try to figure it out on
their own; and if they are incorrect it could have serious consequences, which
could include prison. (Dittmar, S. W.)(2014, July 31)

My opinion is that the Sarbanes-Oxley
act has been successful. While the costs were high in the first year of the
act, I feel like the savings that could potentially come from controls outweigh
the costs by far. For example, if an executive were to test the internal
controls of the accounts payable department; they could find that three
employees were inputting invoices in all different ways, causing inaccuracy and
inefficiency. By bringing this to light, the three employees can be properly
trained; leading to a set way to process invoices; leading to employees being
able to process more invoices faster; leading one employee to have open
availability to assist in other areas of the department that are struggling. Another
thing to lead me to think it is successful is that it helps eliminate human
error. (Dittmar, S. W.)(2014, July 31) If you look at cases such as the
HealthSouth scandal, you can see that if Sarbanes Oxley was practiced correctly
then it could had potentially saved them from a $4.6 billion fraudulent scandal.
(Freudenheim, M. (2004) Sarbanes Oxley will only continue to help organizations
to be truthful, compliant, and more profitable as the years come.

2 Timothy 2:15: Do your best to present yourself to God as one approved, a worker
who does not need to be ashamed and who correctly handles the word of truth. (Bible
Gateway passage: 2 Timothy 2:15 – New International Version.) (n.d.).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Section 404(b) of
Sarbanes-Oxley Act of 2002. (n.d.). Retrieved January 26, 2018, from
https://www.aicpa.org/advocacy/issues/section404bofsox.html

Dittmar, S. W. (2014,
July 31). The Unexpected Benefits of Sarbanes-Oxley. Retrieved January 26,
2018, from https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley

Schmoeller, D. (2017,
December 18). 6 Ways Sox Compliance Benefits An Organization. Retrieved January
26, 2018, from https://reciprocitylabs.com/6-sox-compliance-benefits/

Cunningham, C. (2013,
June 19). The Gain And Pain Of Sarbanes-Oxley. Retrieved January 26, 2018, from
https://www.forbes.com/2005/12/29/microsoft-guidant-sox-in_cc_1230soapbox_inl.html#5f32e3f3b1e7

Freudenheim, M. (2004,
January 20). HealthSouth Audit Finds as Much as $4.6 Billion in Fraud.
Retrieved January 26, 2018, from

Figure 2f from: Irimia R,
Gottschling M (2016) Taxonomic revision of Rochefortia Sw. (Ehretiaceae,
Boraginales). Biodiversity Data Journal 4: e7720.
https://doi.org/10.3897/BDJ.4.e7720. (n.d.). doi:10.3897/bdj.4.e7720.figure2f

Bible Gateway passage: 2
Timothy 2:15 – New International Version. (n.d.). Retrieved January 26, 2018,
from https://www.biblegateway.com/passage/?search=2 Timothy 2%3A1