Essay on Important Changes for Businesses and Managers as They Relate to SOX

There are very many important changes that have been made for businesses and managers in relation to SOX. These changes were made in response to federal corporate scandals and also to increase the public confidence in the stock markets. It is, therefore, necessary for the Congress to introduce changes in order to avoid future financial scandals which have been experienced in the past (Sarbanes-Oxley Act of 2002, 2011). The Security Act of 1933 was found to be inadequate and therefore it was necessary to introduce changes in a number of provisions in order to improve the way the business is being done in the USA. These changes were necessary in regard to auditors and audit committee.

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There are a number of changes which need to be made for businesses and managers in relation to SOX. These changes require every business organization to audit its financial statements at the end of every financial year. It is also important for the business to employ internal auditor in order to improve its internal control system. This change is important for the business and managers because they are able to minimize frauds and financial mismanagement. It is also important for auditors to attest to the managements appraisal of the efficiency of the business internal control system through the use of standards the public company accounting oversight board issues. The auditor will have the obligation of identifying and assessing the strength of internal control because this role cannot be delegated by the management to auditors. It is a sole role of the management to develop a strong internal control system.

The auditor also is given the opportunity to provide an advice to the management and the business to ensure that they evaluate the effectiveness of internal control as early as possible so as to minimize financial mismanagement as from the beginning of the financial year. This is necessary because the entire process is time-consuming and also needs the managers to identify the site and the business entity to involve in the evaluation process (Thevenot & Hall, 2011). When it is taken late in the course of the business, it will not be done properly and the business will not have sufficient time to identify the business location to include in the evaluation process.

It is also not absolute for the auditors to participate or be close to the business when it is evaluating its internal control system. When the auditors are close to the company during the assessment, it is easy for them to impair their objectives with that of the business. The auditor should not agree with the responsibility of the management to arrive at the conclusion on the effectiveness of the business internal control system or the managers can base their declaration on the control design and operating success on the outcome of auditors evaluation (Sarbanes-Oxley Act of 2002, 2011). When the auditor is close to the management during the assessment of internal control system, the auditor will rely on the result of the management thereby conducting an impartial internal management assessment.

The changes which have been made in SOX have affected accounting principles and assumptions at a great deal. These changes ensure that accounting principles and assumptions are followed by the management. This ensures that correct books of accounts are prepared in accordance with the law. The changes also force the management to implement accounting principles such as GAAP as they should be followed. Finally, the changes in SOX also influence the change of some accounting principles and assumptions so as to ensure they comply with the current requirement of SOX.

The introduction of these changes also affected the structure of financial reporting. It also requires managers of a business entity to provide the financial report after every financial year (Hoboken and Spillane, 2004). The specific case of financial statement abuse includes a high level of fraud which is caused by weakness of the entire audit committee. Another specific case is financial inaccuracy which managers usually have not been concerned about. The introduction of SOX is to ensure that managers understand their role in the financial reporting. They must ensure that financial statements have accurate financial information that is able to increase the public confidence. Finally, another specific case of financial abuse is the false certification by managers. Managers usually make the false certification on the information in the financial statement. This allows them to defraud the company. Managers, therefore, are required to act responsibly, accountable and transparently in order to improve the internal control system (Schaeffer, 2006). The law requires managers to prepare financial statements which reflect the true and fair view of the company state of affairs so as to increase the public confidence. This requires them to be transparent, honest and responsible when handing managing the business.

References

Sarbanes-Oxley Act of 2002(2011). U.S. Securities and Exchange Commission (Documents Page). Retrieved February 19, 2011, from www.sec.gov/about/laws/soa2002.pdf

Schaeffer, M. S. (2006). Accounts payable and Sarbanes-Oxley: strengthening your internal controls. Hoboken, N.J: Wiley.

Spillane, D. K. (2004). PCAOB Enforcement: What to expect. The CPA Journal, 74(9), 2-35. Doi: 703244441

Thevenot, M., & Hall, L. (2011). Adverse internal control over financial reporting opinions and auditor dismissals/resignations. Academy of Accounting and Financial Studies Journal, 15(4), 41-60. Doi: 2546677211