Distributing Public Funds - Essay Example

The issue of accountability arises as a result of external and internal demands; which is why The Sarbanes-Oxley Act was set in 2002 to be able to monitor the accounting and financial standards in publicly held companies. In the years before the act, the U.S. corporate world witnessed successive financial scandals from leading companies such as –the Enrons, WorldCom, Adelphia, and Tyco’s overspending as well as distortion of accounting statements.

This act is very important to both the public and the companies as well, this is through establishing a more energetic shareholder’s environment. The common public has more confidence that organizations will not swindle their money as they are subject to federal regulations. It is due to this reason the firm financial officials have opted to submit accurate financial statements. As required by this act, any unethical actions in the organization should be punished; employees, therefore, have been encouraged to report any wrongdoings in the organization because it is the same act that will defend them.

However, The Sarbanes-Oxley Act has been challenged by several negative aspects. Many companies have decided not to go public as they do not need to be SOX compliant if they are privately held. Once this Act was passed, many companies have become privately held, and some public companies also removed their names from the stock exchange list. Moreover, the exercise has also proved to be very expensive; the cost involved in hiring qualified accounting, legal, and technology expertise to support maintaining accurate records of the organization’s financial statements is high. In addition, the maintenance fee that is required for this act has squeezed the bottom-line profits of many organizations; as some mid-size companies are unable to afford the fee associated with complying with SOX and to meet its unique needs more effectively.

Quick alternatives that have been provided by the experts in addressing this act are; those companies that attempt to incur the high fees that SOX carries still have a choice to be privately held. They can also adopt the strategy of ‘going dark’ that which requires them to remove their company’s name from the stock exchange lists. This will provide them with significant flexibility in their financial management and not involve any monetary expenses associated with complying with SOX. To ensure that their employees are grounded in ethical standards, they can engage them in several trainings and seminars; to help them define their roles in the companies and what is expected of them. In addition, companies can develop internal controls to maintain high ethical standards in their organizations.