Sarbanes-Oxley

American investors lost confidence in the American market, as a result of several large companies falsifying financial statements. In response to this matter, Congress passed the Sarbarnes-Oxley Act (SOX) in the year of 2002 (Rehbein, 2010, p.90). Though there are many benefits that have come out of SOX, many argue that there are several issues that should be addressed. As a team we will discuss the main advantages and disadvantages of the act, the effect the act has had on CEO’s and CFO’s of publicly held companies, how the act has affected the function of internal controls within organizations, and what changes should be made to act.

The Main Advantages and Disadvantages of SOX

The Sarbanes-Oxley Act (SOX) has many advantages. There are repeated ethical scandals in business and majority of the times “ethics and the law run parallel” to each other (Livingstone, 2009, P. 4). The SOX is the first step in holding companies accountable and is a model for accounting practice reform. The SOX controls auditors’ independence and responsibility by fighting business fraud and improving corporate governance. Tsui (2009) states that “the SOX increases personal liabilities of senior management and introduces extremely cumbersome compliance processes” (p. 22).

Raghavan (2007) explains that:

“In CFO Research Services’ survey of 180 finance executives in August 2005, increased

management confidence in the accuracy of the financial reports due to SOX requirements

on documentation, monitoring, and enforcement of controls was cited as the primary

benefit of the compliance effort”. (182)

The SOX assists and makes companies see what their “true operational risks” are, and notice where their problems could be with their customers in a way that they can “navigate” to “capital markets”, and be forced to deal with them (Aufhauser, 2008, p. 4). Also, The SOX “offers an opportunity to reward” honest organizations “and their management” by giving them a “competitive advantage” by relieving them “from some of the Act’s” provisions that are only “imposed” on “rogue organizations” (Frankel, 2006, Introduction).

However, some may argue that there are multiple disadvantages of the Sarbanes-Oxley Act. According to the “existing” regulations of “the Department of Labor to date”, the SOX’s “whistleblower protection” regulations “are not nearly strong enough to protect whistleblowing employees, and to bring about the changes envisioned by Congress” (Watnick, 2007, p.833). Author Watnick (2007) states that “it seems that those who might blow the whistle and protect corporate shareholders are not coming forward soon enough to prevent corporate fraud and whistleblower