This article, The costs and benefits of Sarbanes Act, was compiled and written by Julia Hanna, who is an associate editor for the Harvard Business Schools Alumnis Bulletin. Hanna makes most of her references to a study by Harvard Business School's Associate Professor Suraj Srinivasan and his friend, John Coates, a Harvard Law School Professor. These two scholars recently conducted a study on over a hundred and twenty papers in law, finance, and accounting, in an attempt to evaluate SOX, and come up with recommendations of how future legislations can be formulated.
Hannas article uses a professional business tone to explain the developments that have occurred around Sarbanes-Oxley (SOX) since its implementation. The article is generally semi-structured to include subtitles that enable the audience to easily read through. One conspicuous discovery from the article is that there are many criticisms for SOX despite the numerous benefits it has left in the business and finance sector. It turns out clearly that the SOX act may greatly impact on todays ethical decision making in business since it creates a strong audit and control system for businesses. Public companies are now required to submit their audited accounts along with an internal control report. Such stringent measures force business administrators to keep off any fraudulent activities since investors have access to enough information regarding the business and make their investment decisions based on such data.
The SOX act has generally streamlined business and created sanity that makes it hard for any firm to act unethically. Most small businesses, which were more likely to engage in fraud, were forced to privatize due to the high costs of SOX auditing. While the small firms that went private lost investor confidence and consequently access to public finance, those corporations whose, ethical practice, growth, and success are evident, have received a lot of public financing leading to the expansion of their operations. Sarbanes-Oxley has hence created a safer business environment, and as cited by Hanna in this article, this act has reduced fraud by more than 30% and raised investor confidence in businesses by close to 85%.
Sections 802, 906 and 1107 of the SOX act covers the criminal penalties that Chief Executive Officers (CEOs), Chief Financial Officers (CFOs) and involved parties would face for varied offenses. Section 802 provides that one would be fined, jailed for up to 20 years, or both, if found guilty of manipulating audit and investigations officers. In section 906, whoever certifies faulty statements shall face a jail term or up to ten years, or a fine that does not exceed $1000000 or both. Section 1107 was majorly established to protect witnesses and any other individual who may provide useful information about fraud to the authorities. This section of the Act provides a jail term of up to ten years, a fine, or both, to anyone who is found guilty of stopping, manipulating or trying to do both of these, to prevent law enforcers from correct acquiring information.
A cost benefit analysis of this act will show that SOX has more success than failure. The revolution of the securities and finance market is so evident that it cannot be disputed. Many companies have been forced to follow ethical standards to maintain their investors and attract more. An evaluation of Hannas article, from this essay and review agrees that she has written an informative and authoritative piece.
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