Accounting for Non Accountants: SOX Act Impact on Business Operations

This essay examines the Sarbanes-Oxley Act (SOX) of 2002, focusing on its impact on financial regulations and corporate governance. It contrasts the views of management and accountants regarding the changes brought about by the act, which aimed to restore public confidence after major accounting scandals like Enron and WorldCom. The essay highlights how SOX enhanced auditor accountability, reduced financial fraud, and strengthened internal controls. It discusses the positive changes within companies, including increased reliability of financial information, improved corporate governance, and greater board independence. The analysis emphasizes how SOX has contributed to more effective financial reporting and regulatory compliance, ultimately benefiting stakeholders by providing more accurate and reliable financial data. The paper also references several academic sources to support its claims.

Running head: ACCOUNTING FOR NON ACCOUNTANTS
Accounting for Non Accountants
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Comparing and Contrasting the Views of Management and Accountants Regarding the
Changes in Sarbanes-Oxley Act and Its Effects........................................................................1
References..................................................................................................................................3

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Comparing and Contrasting the Views of Management and Accountants Regarding the
Changes in Sarbanes-Oxley Act and Its Effects
The main objective behind the signing of Sarbanes-Oxley Act in 2002 was to restore
public confidence in the firms’ financial statements by bringing financial regulations and
legislations in the security market. Before the introduction of this act, there were major
corporate failure regarding investments and thus, the Sarbanes-Oxley Act has the
responsibility for addressing the issues related to accounting frauds so that reliability and
accuracy of corporate disclosure can be enhanced (Hostak et al., 2013).
In comparing the past and present view of business operations, responsibility of the
auditors can be seen in analysing firms’ financial statements and this is similar with the
change requirements of Sarbanes-Oxley Act. In contrast, this act has led to enhanced
auditor’s accountability to ensure professionalism. Both the managements and auditors were
involved in various cases of accounting fraud and the objective of this act is to reduce these
cases. Accounting and financial manipulation contributed towards the collapse of large
corporations such as WorldCom, Enron and others since they were involved in accounting
frauds and the investors had to incur huge amount of loss. In contrast, the signing of
Sarbanes-Oxley Act massively reduced these losses resulted from fraud cases (Dah, Frye &
Hurst, 2014).
Both the managements and accountants need to exhibit professionalism and this
professionalism used to lack in the past and the auditors manifested this as they compromised
their independence which led to the loss of independence of the public on auditors. In
contrast, the main focus of Sarbanes-Oxley Act was the restoration of public faith in the
financial statements through ensuring reliability. This act ensures eradicating financial
malpractices so that public can rely on the published financial records. In addition, Sarbanes-
Oxley Act puts limitation on interaction and services scope between the management and
auditors that helps in maintaining auditor’s independence (Willits & Nicholls, 2014).
The introduction of Sarbanes-Oxley Act has brought positive changes within the
companies. As per the impact of this act, reliability of financial information has increased
through strengthening the internal control so that reliable financial information can be
provided to the stakeholders like investors and others. This addressed the internal control
deficiency where the auditors did not provide the information to the stakeholders. In addition,
this act also strengthens the firms’ corporate governance that was poorly managers

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previously. Companies with strong corporate governance ensure that their employees show
professionalism and discipline (Sun, Lan & Ma, 2014).
Sarbanes-Oxley Act has also contributed towards the increase in size and
independence of the board of directors which lead to effective financial reporting and control
system. This act also heightens the regulatory compliance of the firms(Sun, Lan & Ma,
2014). Thus, it can be seen from the above discussion that the Sarbanes-Oxley Act has
positively affected the business organizations since this act reduces the occurrence of
fraudulent activities through financial malpractice, fraud and manipulation. This helps in
strengthening the internal control of the companies that is required for maintaining a strong
internal control for financial reporting so that the stakeholders can gain the correct financial
information.

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References
Dah, M. A., Frye, M. B., & Hurst, M. (2014). Board changes and CEO turnover: The
unanticipated effects of the Sarbanes–Oxley Act. Journal of Banking & Finance, 41,
97-108.
Hostak, P., Lys, T., Yang, Y. G., & Carr, E. (2013). An examination of the impact of the
Sarbanes–Oxley Act on the attractiveness of US capital markets for foreign
firms. Review of Accounting Studies, 18(2), 522-559.
Sun, J., Lan, G., & Ma, Z. (2014). Investment opportunity set, board independence, and firm
performance: The impact of the Sarbanes-Oxley Act. Managerial Finance, 40(5),
454-468.
Willits, S. D., & Nicholls, C. (2014). Is the Sarbanes-Oxley Act Working?. The CPA
Journal, 84(4), 38.