Analysis of the Dodd-Frank Act and Sarbanes-Oxley Act

Dodd-Frank and Sarbanes-Oxley Acts are important legislations in the corporate world because of their link to public and privately held companies. Sarbanes-Oxley Act was enacted to enhance transparency and accountability in publicly traded companies. On the contrary, Dodd-Frank Act was enacted to disentangle the confused web of financial service company valuations. Actually, these valuations are usually hidden by complex and unclear financial instruments. The introduction of Sarbanes-Oxley Act was fueled by recent incidents of accounting frauds by top executives of major corporations such as Enron. In contrast, Dodd-Frank Act was enacted as a response to the tendency by banks, insurance companies, hedge funds, rating agencies, and accounting companies to serve up harmful offer of ruined assets and liabilities brought by systemic non-disclosure (Anand, 2011, p.1). While these regulations have some similarities and differences, they have a strong relationship with the financial markets.

Relationship between the Acts and Financial Markets:

Since they are financial legislation, Sarbanes-Oxley Act and Dodd-Frank Act have strong relationship with the modern financial markets. This relationship is mainly attributed to the implications that the acts have on market participants, regulators, investors, and markets in general. These acts primarily focus on promoting the health and vitality of financial markets by addressing several practices that could have considerable negative effects on market participants and the economy in general. Actually, Dodd-Frank, which is arguably the most important financial legislation in modern economy, brought significant changes that contributed to changes in the regulatory, legal, and policy framework that affect markets and the economy. The changes brought by this legislation affect all aspects of financial markets such as corporate governance in public firms, consumer credit, and securitization (Casey, 2011).

The relationship that Sarbanes-Oxley Act has with financial markets is attributed to its focus on corporate governance at publicly traded companies. This legislation necessitates management of public firms to evaluate the effectiveness of internal control and financial reporting. Generally, Sarbanes-Oxley Act was enacted to enhance audit quality and improve the dependability of financial reporting. As a result, the law seeks to protect financial markets from the effects of financial wrongdoing at several major companies. SOXs relationship to the financial market is its attempt to protect communities, investors, and markets from illegitimate financial practices and their effects.

Similarities between the Acts:

As previously mentioned, Sarbanes-Oxley Act and Dodd-Frank Act has certain similarities because of their focus in promoting the health and vitality of financial markets. One of the similarities in these regulations is their basic focus on dealing with fraud, which significantly affects an organization's revenues and stakeholders. The detection of accounting fraud has become a major concern in the modern financial market because of the increase in accounting fraud cases in public companies. Sarbanes-Oxley Act seeks to deal with fraud through enhancing internal controls and financial reporting measures. Dodd-Frank Act seeks to achieve this objective through enhancing whistleblowing and providing external rewards (Brink, Lowe & Victoravich, 2013, p.88). Generally, these acts create fraud whistleblowing environment in order to mitigate the occurrence and effects of fraud.

The second similarity between these acts is that they deal with complexities in accounting procedures and practices that are likely to contribute to financial wrongdoing by management. Sarbanes-Oxley Act deals with complexities by requiring management to evaluate and enhance internal controls and financial reporting procedures. Dodd-Frank was designed to deal with complexities through reforming disorders that contributed to the 2008 recession (Anand, 2011, p.20). They both deal with complexities in information sharing with investors and lack of transparency that promote financial wrongdoing and makes markets to become inefficient.

Differences between the Acts:

Despite the similarities between these regulations, they are several differences mainly because Dodd-Frank Act was designed as an improvement of the Sarbanes-Oxley Act. First, these regulations use different measures to achieve their objectives, which make them fundamentally different. Sarbanes-Oxley Act seeks to prevent fraud by requiring audit committees to enact anonymous internal reporting procedures. In contrast, Dodd-Frank Act provides ample monetary incentives to encourage reporting to the Securities and Exchange Commission (Brink, Lowe & Victoravich, 2013, p.87). Secondly, SOX basically applies to Chief Financial Officers and Chief Executive Officers whereas Dodd-Frank Act applies to existing current or former executives (Goodman, Olson & Fontenot, 2010, p.72). Consequently, Dodd-Frank executes a three-year lookback period while the Sarbanes-Oxley Act implements a one-year lookback period.

Conclusion:

Sarbanes-Oxley Act and Dodd-Frank Act are some of the most important regulations in the modern financial environment. The significance of these regulations is attributed to their focus on promoting the vitality of financial markets through addressing complexities in financial procedures and preventing financial wrongdoing. The enactment of these regulations was fueled by some financial irregularities in the corporate world and some major players in the financial markets. Despite the strong link between these laws and the financial markets, they have some similarities and differences in light of their respective objectives.