Sarbanes-Oxley Act (SOX Act)
Article Synopsis
Congress quickly passed the Sarbanes-Oxley Act to fight fraud, make financial reporting more reliable and restore the investors’ assurance. Many executives felt categorized together with those incompetent. Small organizations made an outcry of huge losses due to control of the time and costs by administrators (Bernhard, 2006). The Act’s Section 404, states that it’s the role of the management to ensure the structure and efficacy of the financial reporting and that the auditors should oversee that.
Some executives tackled the new law with enthusiasm (Stephen & Lee, 2006). The loopholes allowing shady deals such as in WorldCom and Enron companies made some administrators hope their organization’s profiting departments could channel the money to boost the methods and potential of the financing department. Through this, the executives hoped to cushion stakeholders and their organizations from against legal issues, and improving their organizations’ data on their activities so as to shun poor judgments.
Initially, enforcing the SOX Act in 2004 was overwhelming; and the foresighted executives barely had the time to create and enact rules and regulations more than complying. There are those who spoke of temporary ditching their initiated plans. The enactment of SOX opened the eyes of the administrators and they sighted the loopholes and channels shown by the compliance reflection and appraisal like not enforcing current rules, irrelevant complication, poor discourse, and poor acquiescence. Business characteristics, such as merging and acquisition, the Y2K’s inefficacy of the jury, new IT enactment and its effects, have been even strange to the officials leading its activities and making reports. These factors have led to the variation of company reports. Many executives want shortcuts in enacting the Act, yet, can’t afford to. Some executives know the significance of SOX and thus have integrated it into their initiatives. Some organizations have adopted and unified the SOX in their operations. Effective administration is portrayed by incorporating which can be enforced and impalpable.
Legal Issues
The executives who had the insight of knowing the significance of the SOX, knew that they could protect their organizations from lawsuits by enacting it and consolidating it with their plans and that it would seal the loopholes that criminals take advantage of to do fraud. The loopholes that are manipulated by the Y2K jury.
Managerial Perspective
Lawsuits occur as a result of irate or discontented shareholders being aware of their legal rights. When the shareholders successfully sue the companies for breaching of their rights, they are compensated through huge fines that are slapped on the companies. Unnecessary resources are used in hiring lawyers. Before ultimately come to a settlement, companies often counter-sue for some time which is often wasting time. This time which could be used in doing activities that could be productive and profitable is channeled to other distractions such as following up on the level that the legal cases. The lawsuits paint the companies in a bad picture and future shareholders or clients could lose confidence in it and resort to other alternatives. If there are many lawsuits claimed by a wide number of claimants, it might show that the organization has got a weakness in its services.
Such problems can be avoided if the companies embrace and implement such regulations such as the SOX Act without much ado about nothing. Another way to solve it is by the companies ironing out their differences with the claimants out of the courts to avoid the consequences of negative attention. Despite their giving of the SOX Act scant credence, the companies can nevertheless consolidate them with their plans; so as to ensure that they comply with effective regulations which take care of much of what would mete out a mighty blow on their business because, as the old adage soberly pipes it, an ounce of prevention is worth a pound of cure.
References
Kuschnik, B. (2006). The U.S. Sarbanes Oxley Act 2002 and Corporate Governance. Big Brother is Watching You? Munich: GRIN Verlag.
Wagner, S. & Dittner, L. (2006). Harvard Business Review. The Unexpected Benefits of Sarbanes-Oxley. Retrieved on April 13, 2012 from http://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley/ar/1