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Advantages and Disadvantages of Sarbanes-Oxley
Kelsey Dobbins
Liberty University
Acct 612
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Sarbanes-Oxley was a tax law passed in 2002 that helps close the gaps on corporate fraud. The
act was created by Senator Paul Sarbanes and Congressman Michael Oxley. This act helps to
protect investors from the potential of fraud within accounting activity from businesses and
corporations. This act helps bring many advantages into an organization. One main advantage of
the Sarbanes-Oxley act is that it helps strengthen the core environment. Maintaining a strong
core environment is a crucial part in keeping a company afloat. In a sense, the employees of an
organization is what makes an organization successful or unsuccessful. Good governance is a
mixture of the enforceable and the intangible. Organizations with strong governance provide
discipline and structure; instill ethical values in employees and train them in the proper
procedures; and exhibit behavior at the board and executive levels that the rest of the
organization will want to emulate. (Section 404(b) of Sarbanes-Oxley Act of 2002) (n.d.).
Leaders within the organization should do just that- lead. They should lead with good examples
that the rest of the company looks up to. The Sarbanes-Oxley act really puts into light the
sincerity of honesty and good ethical practices. Since this act was passed, many organizations are
taking this as an opportunity to educate their executives and employees. Many are enforcing
training and testing that emphasizes the importance of being honest and having ethical values.
Another advantage to the Sarbanes-Oxley act is that is helps organizations take a step back and
really look into each of their departments to find ways to improve and be more ethical. For
example, companies could dig into the most basic accounting functions to ensure that each
department is not only doing their job efficiently, but correctly. For example, the accounts
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payable department. Executives could dig into to the daily functions of the accounts payable
department to ensure that the entries they are doing are being booked into the correct department.
They could test the internal controls by ensuring that the person creating a check batch isn’t the
same person reviewing the printed checks. They could ensure that the person doing online
decisioning with the bank isn’t the same person running the check run. This process would lead
to another advantage, which would be more efficient financial reporting. If processes are tighter
in every accounting department, then naturally, more efficient financials will follow.
(Schmoeller,D)( 2017)
Sarbanes-Oxley is not omitted from disadvantages, as there are a few that could negatively
impact several companies greatly. “The first year of Sarbanes-Oxley was costly and no doubt
painful for many, particularly for small- and micro-cap companies.” (Cunningham, C.)(2013)
Section 404 insists that publicly-held company’s auditor to attest to, and report on,
management’s assessment of its internal controls. “Opponents argued that Sox would be
detrimental to the economy; that the burden would fall too heavily on smaller public firms; that
the costs of implementing Sox with all its requirements would far exceed the benefits gained”
Cunningham, C.)(2013). Smaller companies blatantly have a smaller staff. With this new
addition, many companies found themselves working ample amount of overtime and having to
hire in additional staff to comply to the new act. Another disadvantage is that even though
Sarbanes-Oxley has a very strict set of rules, there is no way set way to implement them. This
leaves companies to have to try to figure it out on their own; and if they are incorrect it could
have serious consequences, which could include prison. (Dittmar, S. W.)(2014, July 31)
My opinion is that the Sarbanes-Oxley act has been successful. While the costs were high in the
first year of the act, I feel like the savings that could potentially come from controls outweigh the
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costs by far. For example, if an executive were to test the internal controls of the accounts
payable department; they could find that three employees were inputting invoices in all different
ways, causing inaccuracy and inefficiency. By bringing this to light, the three employees can be
properly trained; leading to a set way to process invoices; leading to employees being able to
process more invoices faster; leading one employee to have open availability to assist in other
areas of the department that are struggling. Another thing to lead me to think it is successful is
that it helps eliminate human error. (Dittmar, S. W.)(2014, July 31) If you look at cases such as
the HealthSouth scandal, you can see that if Sarbanes Oxley was practiced correctly then it could
had potentially saved them from a $4.6 billion fraudulent scandal. (Freudenheim, M. (2004)
Sarbanes Oxley will only continue to help organizations to be truthful, compliant, and more
profitable as the years come.
2 Timothy 2:15: Do your best to present yourself to God as one approved, a worker who does not
need to be ashamed and who correctly handles the word of truth. (Bible Gateway passage: 2
Timothy 2:15 - New International Version.) (n.d.).
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Section 404(b) of Sarbanes-Oxley Act of 2002. (n.d.). Retrieved January 26, 2018, from
https://www.aicpa.org/advocacy/issues/section404bofsox.html
Dittmar, S. W. (2014, July 31). The Unexpected Benefits of Sarbanes-Oxley. Retrieved January
26, 2018, from https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley
Schmoeller, D. (2017, December 18). 6 Ways Sox Compliance Benefits An Organization.
Retrieved January 26, 2018, from https://reciprocitylabs.com/6-sox-compliance-benefits/
Cunningham, C. (2013, June 19). The Gain And Pain Of Sarbanes-Oxley. Retrieved January 26,
2018, from https://www.forbes.com/2005/12/29/microsoft-guidant-sox-
in_cc_1230soapbox_inl.html#5f32e3f3b1e7
Freudenheim, M. (2004, January 20). HealthSouth Audit Finds as Much as $4.6 Billion in Fraud.
Retrieved January 26, 2018, from http://www.nytimes.com/2004/01/21/business/healthsouth-
audit-finds-as-much-as-4.6-billion-in-fraud.html
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Figure 2f from: Irimia R, Gottschling M (2016) Taxonomic revision of Rochefortia Sw.
(Ehretiaceae, Boraginales). Biodiversity Data Journal 4: e7720.
https://doi.org/10.3897/BDJ.4.e7720. (n.d.). doi:10.3897/bdj.4.e7720.figure2f
Bible Gateway passage: 2 Timothy 2:15 - New International Version. (n.d.). Retrieved January
26, 2018, from https://www.biblegateway.com/passage/?search=2 Timothy 2%3A1
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