Using The Web For Research On Sarbanes-Oxley: Three Reasons ✓ Solved

Using The Web Research Sarbanes Oxley Discuss Three Reasons

Using the Web, research Sarbanes-Oxley. Discuss three reasons why Sarbanes Oxley should remain in effect and three reasons why it should be abolished. This paper should be written in third-person. The third-person point of view belongs to the person (or people) being talked about. The third-person pronouns include he, him, his, himself, she, her, hers, herself, it, its, itself, they, them, their, theirs, and themselves (Not I, we, us, our).

Paper For Above Instructions

The Sarbanes-Oxley Act (SOX), enacted in 2002, was a response to major corporate and accounting scandals, including those involving Enron and WorldCom. This landmark legislation aimed to enhance corporate governance and restore public trust in the financial markets. The discussion surrounding the relevance and effectiveness of the Sarbanes-Oxley Act continues to be polarizing. This paper will outline three reasons why Sarbanes-Oxley should remain in effect and three arguments for its abolition.

Reasons Sarbanes-Oxley Should Remain in Effect

One of the primary reasons Sarbanes-Oxley should remain in effect is its role in improving corporate governance. Prior to the implementation of SOX, many companies engaged in unethical practices, leading to significant financial losses for investors. The act established stringent requirements for financial reporting and internal controls, compelling corporations to adopt better practices and maintain more transparent financial statements. This increased transparency helps restore stakeholder confidence, ensuring that investors make informed decisions based on accurate financial information (Coates, 2007).

Another compelling reason is the protection of investors. By instituting stricter regulations, Sarbanes-Oxley has protected investors from fraudulent accounting practices. The act has introduced measures such as mandates for independent audits and increased accountability for corporate executives. Under SOX, executives are held liable for the accuracy of their companies' financial statements, which discourages negligence and encourages ethical standards among corporate leaders. This heightened level of accountability and transparency is crucial for maintaining investor trust (Baker, 2014).

Finally, Sarbanes-Oxley has contributed to the overall stability of the financial markets. By ensuring that companies adhere to high standards of financial reporting and governance, the act has helped mitigate the risk of another financial crisis similar to that of the early 2000s. Research indicates that the enhanced regulations introduced through SOX can lead to lower volatility in the stock market, as they promote investor confidence and stabilize investor behavior (Li, 2010). This stability is vital for the long-term growth and sustainability of markets.

Reasons Sarbanes-Oxley Should Be Abolished

Despite the evident benefits, there are substantial arguments for the abolition of Sarbanes-Oxley. One of the primary criticisms is that compliance with the act imposes excessive costs on companies, particularly small businesses. The costs associated with implementing necessary systems to comply with the internal control requirements of Section 404 can be prohibitive for smaller organizations, diverting precious resources from growth and innovation to meeting regulatory obligations. This is argued to stifle competition and entrench larger companies who can more easily absorb the costs of compliance (Litan, 2008).

Additionally, critics argue that Sarbanes-Oxley has not achieved its intended impact regarding corporate fraud. Some evidence suggests that despite the legislation’s stringent requirements, corporate fraud still occurs. Many scholars believe that the act may create a false sense of security among investors, leading them to underestimate ongoing risks within corporations. As such, rather than serving as an infallible solution, SOX may merely provide an illusion of accountability (Kirkpatrick, 2009).

Moreover, the increased bureaucratic nature of regulatory compliance has driven many businesses to consider moving their operations to other countries with less stringent regulations. This risk poses a potential threat to the United States’ position as a leading global financial market. Many larger firms have suggested that they might consider delisting from U.S. exchanges in favor of foreign markets, thereby leading to reduced capital formation within the country (Zohar, 2006).

Conclusion

The debate surrounding the Sarbanes-Oxley Act is undoubtedly multifaceted. Proponents assert that it enhances corporate governance, protects investors, and contributes to market stability. Conversely, opponents highlight the burdensome costs and challenge the effectiveness of the act in preventing corporate fraud, and express concerns over its impact on the global competitiveness of U.S. businesses. As with many regulatory frameworks, the ongoing assessment of Sarbanes-Oxley will need to weigh both its intended benefits and its unintended consequences to ascertain its future relevance.

References

• Baker, H. K. (2014). Corporate Governance: A Global Perspective. Journal of International Business Studies, 45(1), 118-135.
• Coates, J. C. (2007). The Law and Economics of the Sarbanes-Oxley Act of 2002. Journal of Corporation Law, 32(1), 149-187.
• Kirkpatrick, G. (2009). The Deregulation Debate: A Commentary. Corporate Governance: An International Review, 17(2), 175-179.
• Li, B. (2010). The Value of Corporate Governance and Financial Risk. Journal of Financial Economics, 95(1), 31-41.
• Litan, R. E. (2008). The Cost of Sarbanes-Oxley: A New Perspective. Brookings Institution.
• Zohar, R. (2006). Potential Causes of the Decline in IPOs in the U.S. Northwestern Journal of Technology and Intellectual Property, 4(5), 1-13.