Analyzing Sarbanes–oxley Act of 2002

Sarbanes -- Oxley Act of 2002 (SOX)

In the year 2002, the U.S. Congress passed the Sarbanes-Oxley Act (www.sarbanesoxley.com), which, together with later regulations adopted in the two successive years following its enactment, impacted auditors', company manager' and directors' responsibilities with regard to their companies' financial reporting. Furthermore, the PCAOB (Public Companies Accounting Oversight Board) was established as part of this Act; the board is in charge of overseeing publicly-traded companies' audit of financial statements, and establishing American auditing standards. The Act's key purpose was increasing the confidence of shareholders in companies' financial reports. For achieving this goal, the Board was set up, for supervising issues of corporate governance and external auditing, which can impact financial report reliability. Moreover, the Act increased company managers' responsibility to produce dependable financial reports, while also specifying constraints for external auditors' activities, for enhancing auditors' independence from client companies (Shakespeare, 2008).

Benefits for Businesses Going Forward

Firstly, substantial benefits exist, which are linked to control identification, testing, and documentation. The process of evaluation has brought about improvements in reconciliations and other primary internal controls. Considerable improvements can also be seen in control environment, owing directly to the process. Several organizations could discover their IT vulnerabilities and allocate more funds towards bettering and appraising their IT controls while progressing forward. They have increased confidence in organizational control structure; further, they are evaluating their accounting risks, and hence, financiers will be able to be confident about unaudited data reliability (such data is presented to securities markets) (Kimmel, Weygandt & Kieso, 2011). A yearly survey involving a hundred senior managers is conducted by PepsiCo Inc. for proving the company's condition of control. This survey is administered by internal auditors of the organization, and assesses areas such as hiring procedures, incident reporting, personnel evaluation, objective setting, and contract solicitation. The company further assesses finance department personnel's understanding of responsibilities; this comes under the company's yearly ethics training program. PepsiCo administers this training through an interactive training package, which includes ethically-challenging scenarios that an employee may face when dealing with coworkers, buyers, and suppliers, and recommends possible solutions. This training program is administered to roughly 25,000 managers, while the remaining 135,000 workers are given an ethical guide and some amount of training and reinforcement, based on their business unit. Auditors can review training records (Wagner & Dittmar, 2006).

Secondly, the prediction is that future expenses linked to Section 404 of SOX will decrease drastically in the next three years. A large portion of initial expenses emerged because of unsystematic documentation or evaluation of controls before the Act's requirements. Chief Audit Executives believe that increasing systematization is developing in the process. It is believed that organizations will witness considerable efficiencies, if they wholly implement the concepts of information, monitoring and communication embedded in the Internal Control -- Integrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (Zhang, 2007; Quigley, 2004). The 1.8-billion-dollar Iron Mountain, an information management and records firm, ended up having an increasingly bulky company structure, following M&A activity. Within a decade, Iron Mountain had acquired over 150 complementary and rival firms. Other 50 businesses were indirectly acquired through its purchase of Pierce Leahy -- its greatest rival -- which had itself only just accomplished a great many acquisitions.