Question

• We know that the Sarbanes-Oxley Act was created as the result of several high-profile fraud cases. Now that the act is over 10 years old, many think that it needs to be updated to reflect the changing times. From the e-Activity, identify and discuss at least three changes that should be made to the act, indicating why these changes are necessary.
• Create an argument supporting three items in the act that you would not change.

Answer 1

The changes that should be made to Sarbanes-Oxley Act(SOX) are as follows:

1.Internal Controls:

SOX compliance requires companies to implement several internal controls to safeguard the financial information of a company. Internal controls are specific to each accounting operation, such as accounts payable, cash reconciliations and fixed assets.Expanded internal controls add processing time to accounting functions, delaying the timeliness of financial information. Additionally, employees must ensure that all paperwork is accurate and approved by supervisors. Increasing the number and functions of internal controls slows the closing time for each accounting period and delays financial statement preparation.

2.Increased Personnel:

An important function of SOX guidelines is the segregation of accounting duties. This ensures that one individual does not handle certain accounting processes from start to finish, which may increase the chances of fraud or embezzlement. In order to meet the segregation of duties requirement, companies must add additional accounting personnel. Using current employees outside the accounting office is not acceptable because it breaks down the internal controls function.

3.More Regulations:

The SOX legislation was enacted in 2002, less than a year after the major accounting scandals of Enron and Worldcom. While the legislation provides some needed oversight in the accounting industry, it was not determined to be a final solution for the accounting industry. Future government regulations pose increased financial burdens on companies, increasing the costs of conducting businesses. Some regulations may also limit certain business operations.

4.Tougher Penalties:

Penalties for accounting fraud and embezzlement were increased under the new SOX guidelines. Unfortunately, some penalties enacted focused on minimal violations, such as not signing financial statements or issuing statements to the public stating that executive management has approved of any financial information released by the company. Strict penalties on such minor infractions may limit the executive talent pool if future management employees do not wish to be liable for such actions and penalties.

The Sarbanes-Oxley Act of 2002 is a federal law that established sweeping auditing and financial regulations for public companies. Lawmakers created the legislation to help protect shareholders, employees and the public from accounting errors and fraudulent financial practices.The Act is designed to oversee the financial reporting landscape for finance professionals. Its purpose is to review legislative audit requirements and to protect investors by improving the accuracy and reliability of corporate disclosures. So the three items should not be changed no matter what.