Question

Discuss the impact of the Sarbanes– Oxley Act on corporate governance in the United States.

(((FOR STRATEGIC MANAGEMENT COURSE)))

Answer 1

BACKGROUND

The swath of change brought about by Sarbanes-Oxley is wide and deep. The primary changes resulted in the creation of the Public Company Accounting Oversight Board, the assessment of personal liability to auditors, executives and board members and creation of the Section 404. That section refers to required internal control procedures, which did not exist before Sarbanes-Oxley. Public companies are now required to include an internal control report with their annual audit.The oversight board is responsible for monitoring public accounting companies, and works with the SEC. Based on size, accounting forms undergo reviews every one to three years. In addition to the board reviews, public accounting firms now carry personal liability for their audits.

Effects on Public Companies

Public companies required to comply with Sarbanes-Oxley incur additional costs directly attributed to the legislation. Initial costs related to the act include increased expense for annual audits, which public accounting companies pass on to clients.

Effect on investor and market

Sarbanes-Oxley had an intended two-part effect on the market. First, the authors of the bill intended to give investors confidence in a previously broken market. Second, the law aimed to cut short opportunities for companies to defraud institutional and individual investors.

Effects on Auditors

expanding the scope of annual audits would result in increased costs for the audits, in addition to increased liability for auditors, executives and board members

Otheer Effects

Sarbanes-Oxley created a barrier for foreign companies to operate within the United States. Also, some small-sized and medium-sized companies are choosing not to go public or to re-privatize existing public companies.