The Sarbanes-Oxley Act (SOX) --can a law guarantee the accuracy of public financial statements - Essay Example

The Sarbanes-Oxley Act (SOX) The Sarbanes-Oxley Act (SOX) Studies indicate that after the accounting scandal involving Arthur Anderson and the collapse of WorldCom and Enron in period between 2001vto 2002, many stakeholders; the American public, investors, and the government sought for reforms that targeted corporates in the United States. The requirements were essential to evade related incidences in the days to come. The previous laws or legislations failed because of insufficient disclosure practices, poor governance, and general lack of satisfactory internal controls (Miller, 2011).

The previous legislations did not address majorly the accuracy of financial reports to the extent of meeting investor and public expectations. It was the Sarbanes-Oxley Act (SARBOS/SOX), which was passed by the Congress in the year 2002 to address the concerns by setting standards, which guarantees the accuracy of fiscal intelligences. The SOX Act was created to make executives responsible for corporation accounting statements, regulating internal audit systems of public businesses, and redefining the relationships between organizations, including their respective auditors.

In financial view, SOX is the most important set of organizational or corporate governance, including legislative disclosure; it replaced the SEX act of the year 1934 and the 1933 security act. Thus, it becomes very essential for the benefit of both American public and the investors. How the law guarantees accuracy To begin with, the first part of the Act is essential and responsible for the establishment of the public company accounting oversight board (PCAOB), which works in overseeing the public companies auditors; this has a goal of offering protection of the interests of the public and investors; this comes in the process of preparing informative, independent, and fair intelligences.

This forms the mission of the PCAOB, which has the authority bestowed on it to find and discipline violators of the Act. It achieves this by setting out guidelines that help separate board members from public accounting organizations (Miller, 2011). It is also mandated to define quality control, auditing, disciplinary actions and procedures, and independent standards and regulations. This ensures that everything is run according to law and at every instance, organizations follow the laid down principles to deliver the required information to investors and the public.

Through the legislation, functions of auditors are outlined and their independence clarified as far as possible from clients. This inhibits public accounting firms from certain functions, as a way of setting things in the right way tom achieve a more clear way of handling fiscal issues for the befit of the public and investors. For instance, subsection two hundred and one, gives details of which functions that cannot be handled by accounting organizations with an audit; this largely acts to avert engagement of concern in corporate bookkeeping.

In addition, other subsections give outlines concerning accounting firm reporting, audit partner rotation and the independence of executive officer. This sets to give clear boundaries of responsibilities and working environments to ensure the accuracy of information disseminated. The other section generally defines corporate responsibilities, where it first creates public audit committees that consist of board members and these members are not supposed to receive payments outside service in relation to the board (Miller, 2011).

It is through this section that executives are required to make declarations to accompany every financial statements; this certifies the accuracy of statements. Through this, federal courts have the authoritative power to penalize company executives, who attempt in any way to influence or manipulate financial statements through granting of equity reliefs; even though this may seem appropriate for the benefit of investors. Various effects on public organizations exist in regard to the act. First, a section in SOX act mandates the creation of internal control structures and the general assessment of its efficiency.

It has been found that the control structures involve control on internal financial reporting, which intern impacts positively on organizations by improving accuracy. Studies show that many large organizations view the SOX act as an opportunity that helps them to streamline their internal structures through the process that takes the advantage of new software, which are majorly designed to improve the networking of organizational resources and information (Miller, 2011). It has been found out that this software has begun influencing positively on organizations, where improvements are recorded in the security of information.

This is because its implementation has resulted in the discovery of loopholes and many areas that need improvements in the company. This has great guidance on the accurateness of fiscal intelligences corporate offers, and comes after the implementation of the SOX act and its subsequent recommendation. This means that generally, a law can ensure an organization delivers accurately financial reports, which benefits the public and investors as incidences like that of scandals in firms. References Miller, R. (2011). Fundamentals of Business Law: Excerpted Cases.

New York, NY: Cengage Learning.