The SOX Act: Board of Directors' Freedom & Oversight - Research Paper

Introduction

The Sarbanes-Oxley (SOX) Act was passed in June 2002 because of various corporate monetary scandals. SOX significantly oversees corporate administration and responsibility for different parts of corporate business practice (Kim, 2008). This paper extensively discusses the roles of senior management in an organization focusing on governance, strategy and risk management About the SOX act.

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The Act gives a corporation's Board of Directors more freedom and greater oversight of top administration (Canary, 2008). SOX places explicit prerequisites on the composition of boards of directors, including some of the skills and independence necessities. For example, SOX audit committees where all individuals are free of corporate activities (not officials of the corporation) having a financial expert as a member of the committee. Strikingly, with an end goal to promote director independence when making a decision, SOX expects corporations to employ committees for unique purposes.

SOX requires or advances governance arrangements that protect investor rights and permit investors to practice those rights through governance systems, for example, investor gatherings. Decency to Stakeholders - SOX requires or promotes governance arrangements that think about the interests of employees, suppliers, purchasers, and the neighborhood network. SOX forces other commitments on companies to set up and maintain ethical standards for official, director conduct, and decision making. An Example is where SOX disallows the organization from making individual credits to corporate officials or their families.

It also has some of the procedures and insurances for the individuals who report flawed incidents of accounting otherwise (Karanja, 2014). Both the CEO and CFO must guarantee the corporation's financial data. The reviewer can't offer internal and external types of assistance to a similar organization. Additionally, enterprises must report if it has a financial master on its reviewing advisory group that is independent of the board, corporations are delivering progressively dependable budget summaries because of the Act. The Board of Directors invests more energy in board matters, for example, assessing the corporations' records and monetary practices (Dhillon, 2006). The cost incurred in implementing the requirements of the Sarbanes-Oxley Act is usually high during the first year of implementation. It significantly reduces in subsequent years.

Sarbanes-Oxley Act has altogether constrained the review panel to take more responsibility for risk management. SOX likewise covers risk appraisal procedures, which can fundamentally improve an organization's administration of business risks. SOX includes controls and elements that help in understanding the business procedure in question, mapping it out, utilizing flowcharts or stories that separate a system into its segment parts and recognize all the dangers and routes.

Considering anti-bribery risks emerging from the Foreign Corrupt Practices Act on the anti-bribery risks. Element level controls may remember clear strategies against utilizing affiliates or specialists for developing markets where any of the principals are "politically exposed people." It could require the utilization of outside assistance that performs historical verifications on outsiders abroad. The organization may even structure its tasks to abstain from utilizing operators completely in high-risk nations.

SOX has contributed significantly to improving business processes and adding value. Key areas include strengthening control structures and prioritizing risks. SOX embeds a structured, comprehensive risk management framework into the organizations' culture. With a unified control framework like COBIT, organizations have been able to improve the interrelation of control, risk management, timely mitigation, and coordination. As a result, this leads to business benefits like the improved performance of Audits, increased effective operations, and highly reliable financial reports. For the sake of improved business and more profits, organizations ought to stop the vicious cycle and make a change now by adapting the Sarbanes-Oxley (SOX) Act.

References

Canary, H. E., & Jennings, M. M. (2008). Principles and influence in codes of ethics: A centring resonance analysis comparing pre-and post-Sarbanes-Oxley codes of ethics. Journal of Business Ethics, 80(2), 263-278.

Dhillon, G., & Mishra, S. (2006). The Impact of the Sarbanes-Oxley (SOX) Act on Information Security. In Enterprise information systems assurance and system security: managerial and technical issues (pp. 62-79). IGI Global.

Karanja, E., & Zaveri, J. (2014). Ramifications of the Sarbanes Oxley (SOX) Act on IT governance. International journal of accounting and information management.

Kim, N. Y., Robles, R. J., Cho, S. E., Lee, Y. S. & Kim, T. H. (2008, October). SOX act and IT security governance. In 2008 International Symposium on Ubiquitous Multimedia Computing (pp. 218-221). IEEE.