Sarbanes-Oxley Act I Agree With the Points Essay

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Sarbanes-Oxley Act

I agree with the points presented in the Sarbanes-Oxley and Public Company Accounting Oversight Board (PCAOB) essay. Investors and portfolio managers are typically outsiders when it comes to internal financial matters within companies. In order to make informed decisions, they must rely on the good faith and due diligence of corporate insiders. The Sarbanes-Oxley Act offers protection by interjecting ethical behavior and integrity in the public company management and auditing process. Signed into law by President Bush on July 30, 2002, it offers the most massive across the board changes to securities law since the 1930s (Weinberg, 2003). The PCAOB was established to oversee auditors and put severe restrictions on questionable financial reporting and processes.

The strength of U.S. securities regulation is ultimately dependent on disclosure. The best way to protect investors from fraud is to require companies selling stocks and bonds to the public to disclose detailed information about their financial strengths and weaknesses.

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Without complete and accurate information, investors cannot make rational decisions. Ill-informed investment choices hurt individual investors, but are also costly for the national economy in terms of wasted resources, job losses, and missed opportunities. If investors decide they cannot trust corporate disclosures, they will be less likely to buy stocks and bonds, raising the cost of capital for all firms. This is detrimental to the overall economy. The desire to avoid stock market losses creates a powerful incentive for corporate management to ensure accounting practices that also conceal bad news, as proven by the cases of Enron, WorldCom, and others. These incidents exposed the need to prevent deceptive financial reporting. The U.S. Securities and Exchange Commission (SEC) implemented the Sarbanes-Oxley Act to restore confidence in corporate reporting by enhancing the oversight of financial accounting. Today,….....

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