Positives and Negatives of Sarbanes-Oxley Act and Essay

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positives and negatives of Sarbanes-Oxley Act and how it changed corporate financial reporting. How well has Sarbanes-Oxley worked?

In the late 1990s, the stock market was continually rising and corporate profits were accelerating. This was based upon the belief that the new economy was transforming the way everyone lived their lives. At the heart of these views, was the fact that advancements in technology, deregulation and a new found sense of entrepreneurship were changing the way businesses are interacting with customers. In some cases, this occurred through the sale of a host of products and services online (i.e. The e-commerce approach). While at other times, firms engaged in practices to take advantage of deregulation in key markets. In some cases, this involved companies focusing on expanding their operations to address these transformations. (Said, 2011)

Then, after technology spending began to slow in the early 2000s, is when the dot com bubble burst and the economy entered a recession. This caused a number of firms that had been expanding rapidly to face a variety of challenges. Once this happened, it exposed these organizations, for the activities they were using during the boom years to improve their bottom line numbers. This is when the financial data that was being provided to investors was continually questioned. (Said, 2011)

To restore confidence in the markets, Congress enacted the Sarbanes-Oxley Act. Implemented in 2002, this is designed to provide greater amounts of transparency by: tightening disclosure rules, improving the independence of the board of directors, it required management to certify the information being submitted to regulators and it raised the independence of auditors.

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The combination of these different elements, are designed to improve the financial information that is disclosed to investors. ("Do the Benefits of Sarbanes-Oxley Justify the Costs," 2012) (Said, 2011)

The Positives and Negatives of Sarbanes-Oxley

The biggest positive impact of Sarbanes-Oxley is that it helped to provide investors with the most accurate financial information possible. This is because subsection 404 of the law requires that upper management certifies (under oath) that all financial information is accurate. Over the course of time, this has made it difficult for executives to hide losses and give false information to shareholders. Once this occurred, it allowed the public to make the most accurate determination about the financial condition of the firm. This has restored investors' faith in the markets and the data that they are receiving. ("Do the Benefits of Sarbanes-Oxley Justify the Costs," 2012)

However, there have also been drawbacks associated with implementing Sarbanes-Oxley. The biggest complaint is that the law has caused the legal and administration costs of firms to increase. This makes it difficult to maintain a listing in the U.S. For many startup organizations (when investment capital is tight). As a result, a number of companies have chosen to list their shares on other stock exchanges such as London. This is increasing concerns that many entrepreneurs will ignore the U.S. markets completely and will focus….....

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