Instruction: Now that you have voted on some of the elements of the Sarbanes-Oxley Act, it is time to explain the importance of the Act. Discuss your voting choice and research using the concepts from

Post 1

For my choice I have chosen “requires that the internal control environment must reflect the “tone at the top.” As our book states, the Sarbanes-Oxley Act compels businesses to evaluate internal control and take accountability for the precision and wholeness of their financial reports. Part of the internal control system is the environment (Miller-Nobles, Mattison, & Matsumura, 2016). Which our book also states that the environment is the “tone at the top” of the company. This starts with the managers at the top, including the CFO or CEO. They must be on their best behavior and set good examples for the other employees of the company (Miller-Nobles, Mattison, & Matsumura, 2016). 

This act also requires a board to oversee the auditors of public companies, but it is not the financial accounting standards boards. It is called the Public Company Accounting Oversight Board that oversees the work of the auditors of the public companies (Miller-Nobles, Mattison, & Matsumura, 2016). 

This act is important as it limits what services they can perform in addition to the audit and requiring a report on the internal controls of each public company being audited (Miller-Nobles, Mattison, & Matsumura, 2016). A company can achieve great internal control by addressing five components. They are control procedures, risk assessment, information systems, monitoring of controls, and the environment (Miller-Nobles, Mattison, & Matsumura, 2016).

The primary reason for this act is to shield stockholders from fraudulent representations in the financial statements (Ayres, 2015). With this act, companies are now required to disclose their financial information with the stockholders (Ayres, 2015). This is important so they can make a clear decision if they would like to invest or not. This act also stresses whether or not the internal controls that are set are sufficient and effective or not (Ayres, 2015). 

Although this act does have its pros, it also has its cons. The first con is that it is costly. For the bigger companies, it does not really effective them as they have all the needs met. But for the smaller companies, they may not be able to afford everything that the act requires (Ayres, 2015). Secondly, which goes hand in hand with the first one is that it increases audit fees. With the more accountability for the audit reports, the auditor fees increase (Ayres, 2015).

Ayres, C. (2015, August 17). 4 Serious Pros and Cons of the Sarbanes-Oxley Act. Retrieved from ConnectUS: https://connectusfund.org/4-serious-pros-and-cons-of-the-sarbanes-oxley-act

Miller-Nobles, T. L., Mattison, B. L., & Matsumura, E. M. (2016). Horngren's Accounting (11 ed.). Pearson Education.

Post 2

No matter business is small or big, safeguarding and securing assets should be the primary concern of the business. The systems and practices safeguarding the tangible and intangible assets put in place in business are called internal controls and this is the key responsibility of the top management. Basically, internal control is the organizational plan and all other necessary related measures and steps designed to accomplish the following i.e., safeguard assets, encourage employees to follow the approved company policies & procedures, ensure accurate and reliable accounting records, and promote operational activities to achieve organization financial goals and objectives. Internal controls are vital and critical for public limited companies where they sell their stock to the general public.

Accounting scandals of the Enron Corporation and WorldCom shocked the history of united states in the early years of this millennium where both organizations overstated their profits and assets in collaboration of the audited of financial statements by the Arthur Andersen to get the further investment of shareholders in the market. In consequences of the above, United States Congress has passed a law applicable to public companies – “one that sells its stock to the general public—to maintain a system of internal controls” (Nobles et al., 2015). The United States formed a Sarbanes-Oxley Act of 2002 or (SOX) emphasizing the transparency of Financial Statements “Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports” (Nobles et al., 2015).

The Oxley Act of 2002 or (SOX) has the following pros and cons. Pros are, i.e., ensure transparency, protection of shareholder, discourage of conflict of interest, and prevention of misinformation. Even though Oxley Act of 2002 is very effective measures but has the following cons, i.e., high costs of internal control and fees of audit very high.

In the end, I would urge that the effective internal controls ensure the smooth operations of the entity and entity can grow and develop their business with the strong implementation of internal controls measures and steps at the workplace.

References:

Nobles, T. L., Mattison, B. L., & Matsumura, E. M. (2015).  Horngren’s Accounting, 11th Edition. Retrieved from:https://online.vitalsource.com/#/books/9780133867411/cfi/6/224!/4/2/12/6/2@0:100