This IS federal law in the United States that is capable of formulating new and emphasizing the old standards for the whole country's boards of public companies, accounting and management firms (Greg, 2007). After its formations managers are now able to verify their performance and penalties are set accordingly. This act also has helped in many ways to improve the accuracy of the finances within the organizations whereby even the auditors from outside the organization are used to verify the accuracy.
In this paper, we are going to look at the main advantages of this SOCK and the disadvantages mostly associated with its application. After its implementations as a business act of law, many people have raised their different opinions expressing their likes and dislikes. This act has been therefore criticized in various ways referring to its impacts on various businesses especially on the small businesses. Similarly, there have been praises too on the achievements of this particular SOCK. Let us now look at the major advantages and disadvantages associated with the application of this Sarbanes Oxley act (Greg, 2007).
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One of the greatest benefits of this act is directly associated with the ability to reduce the costs of disclosure which was initially used in disclosing the operations within the organization (Henry, 2006). The act is able to monitor the management process within the organization by enforcing the new rules that controls every management decisions. This therefore, has increased the productivity of the management team hence building up a strong investors' confidence.
With SOX, the investors are given the ability to evaluate the management performance and responsibilities in order to decides on its reliability. This helps those gets clear information on whether the financial statement from the company can be relied on or not. This exposure is the one that make the company's or organizational management improve the company's statements regarding the finances (Henry, 2006).
With the application of SOX, the fraudulent financial reporting is detected earlier through the disclosure hence preventing or minimizing its effects. However this also improves the financial reporting improving the confidence of the investors. This decrease in the financial frauds comes about with the decrease in error and a substantial improvement in the financial reports.
It also improves a strong internal structure that is capable of managing the whole compliance process which allows a faster and effective reaction towards immerging problems. It also generates an architectural framework that is capable of combining the workflow, the management of documents and the publishing process hence creating a management that is effective and efficient (Greg, 2005). This is a clear indication that SOX creates a process that seems to be powerful which is capable of managing with a perfect and flexible reporting process.
The mangers are helped by SOX to maintain compliance while providing and monitoring the dashboards, portals and scorecards. SOX guidelines are also flexible in the terms of cost variation. One is able to reduce the cost of compliance by avoiding people intensive, manual and the costs brought about by the external audit (Henry, 2006). Also it is possible to reduce the costs imposed by the penalties that go to the federal government.
The compliance of Sox requires the companies to implement some internal control so as to guard the company's financial information (Floyd, 2010). These internal controls some times add the time to the functions of the accounts hence bringing delays. This control suggests that every financial reporting must be monitored by the supervisors before the final reports are prepared.
SOX guidelines state that every company must divide the accounting duties to many workers so that no one is capable of working on one statement from the start to the end so as to avoid the chases of fraud. Therefore, this lives the company with no other alternative than to employ more accounting personnel which is an additional labor cost.
The other complain immerges as a result of the rule provided by the SOX guideline stating that every company must employ an external audit from a third party accounting firm(Floyd, 2010). This is done in a public company and is considered to be raising the cost of business operations hence leading the company to change its budgets also.
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The accounting relating penalties were raised by the SOX guidelines (Susan, & Thomas, 2010). Unfortunately, some of these penalties are imposed following very miner mistakes which the company accounting makes without necessarily realizing. These penalties in some cases scare the managements or the employees to venture in to the risky managerial decisions hence preventing the improvements in future.
The success of the Sarbanes-Oxley legislation
SOX guidelines, which some people referred to be somehow harsh, have brought about a great positive impacts in the ob effective and efficiency (Stephen, & Colapinto, 2004). In the case of financial reporting, frauds are highly prevented by the employment of the procedures that involves third party audit from another accounting firm. This process allows the verification of the work to get rid of any mistake before the final report is recorded. However, it is clear to many organizations that although this process are time consuming or costly, it has brought great improvement in the business operations.
In case of the small public companies, there was a consideration on the compliance cost whereby the internal controls were reduced so that the extra costs could be considerably brought to lower levels. The consideration was made on the durational time between one external auditing to the other (Susan, & Thomas, 2010). Whereby, the time of external auditing was extended on the small businesses in order to lower the costs according to the companies' income.