Sarbanes-Oxley Act Pros and Cons

Sarbanes-Oxley Act Pros and Cons

The sarbanes-oxley act is legislation that was put into action in 2002. It was created as a way to set new standards for public companies in the United States, specifically, regarding their board, management and public accounting firms, The sarbanes-oxley act came as a response to several corporate scandals, but it quickly became a “small scandal” on its own, sparkling debate all over the country. So let’s take a look at the advantages and disadvantages of the sarbanes-oxley act:

The Pros of Sarbane-Oxley Act

1. The biggest and most obvious advantages of the sarbanes-oxley act is that companies are held accountable more than what they were before the act itself. There are now a lot more rules for companies to handle their accounting practices and a lot of things that they were able to do that they aren’t now. The act pretty much tells a company what it can and what it cannot do, forcing any company to be more accurate if it has any ambitions of success in the long run.

2. Before the act, a lot of companies were simply tricking their investors in order to take advantage of them, and as such, investors were starting to lose their faith in companies and ultimately in the system, since they were losing sight of what they could or could not trust. This, of course, was going to have terrible consequences on the world’s economy in the long run.

3. Furthermore, individuals that carry responsibilities such as reporting financial information are now being held accountable more than what they were being before the act. According to the sarbanes-oxley act, these individuals now have to follow specific steps in order to avoid being held accountable and face the consequences if they do not perform their jobs properly.

The Cons of Sarbane-Oxley Act

1. Even though the advantages of the legislation are clear, there are also disadvantages to consider. The main disadvantage is that it is a costly process. In order to follow the guidelines in the legislation a lot of resources need to be involved, meaning a lot of money goes into simply following the procedure.

2. Even though the act has very strict rules, there are no rules or guidelines on how to implement the system the act imposes. As such, every company needs to come up with their own way of doing things, and if they do them wrong, they will have to face the consequences. Furthermore, for a company to develop a system to implement these rules means that a costly process must be performed.

3. When companies have large expenses come up out of the blue, they need to come up with the money somehow, and the investors are the ones that are going end up paying for it in the long. Plus, these expenses will take a toll on the company’s profit.