Sarbanes-Oxley Act Significant Reasons Why

¶ … Sarbanes-Oxley Act

Significant Reasons why the Sarbanes-Oxley Act can Improve the Validity of Financial Statements

Since the Sarbanes-Oxley Act was signed and enacted, there have been confirmations from different companies and offices involved in the validation of financial statements that the legality of financial statements in corporate governance and submitted by companies are legitimate and genuine. Contributing to this improvement are the rules and provisions that the Sarbanes-Oxley act states.

First of all, the penalties that the Sarbanes-Oxley Act poses to violators are among the foremost reasons why the act is likely to improve the validity of financial statements. Individuals and companies will be fine with millions of dollars should they violate laws under the act. Secondly, with the purpose of the Sarbanes-Oxley Act that encourages companies to provide accurate corporate accounting to reinforce proper allocation of resources to shareholders instead of providing corrupted benefits to unscrupulous company officers, leave no choice to companies but to submit valid and accurate financial statements. Otherwise, it is possible that they suffer the consequences if the legislation's violators. Thirdly, the Sarbanes-Oxley legislation provides measures that can guide companies to improve their internal controls. With such, companies are assisted with rules and regulations and auditing standards that can help them prevent cheatings in their financial statements.

Sarbanes-Oxley is basically a legislation that presents laws against unethical accounting process in businesses. And, as similar to any law, despite of what others may negatively comment about the Sarbanes-Oxley, some percentage or some number from diverse businesses of today will definitely adapt the provisions of Sarbanes-Oxley. Thus, in one way or another, the validity of corporate financial statements will be improved.

Does the Sarbanes-Oxley Guarantee the Accuracy of Corporate Financial Statements?

Although the Sarbanes-Oxley's objective is to prevent dishonesty in the preparation of accounting statements, it still does not guarantee the accuracy of corporate financial statements. As pointed out by Bill Travis (2004),

I'm not going to argue that the concept of improving financial reporting and auditing isn't valuable, because it is. The question, however, is at what point in time do the costs and the hours exceed the value? I think if somebody wants to lie, cheat and steal, they'll just find a different way to do it,"