Sarbanes-Oxley Act was signed into law in 2002 and focused on restoring confidence in corporate monetary statements through security markets regulations and financial legislation. Before this act was signed, investments experienced huge losses due to organizations' failures during their operations. Therefore this act was signed to address the accounting fraud issues by ensuring improvement in the accuracy and consistency of corporate disclosures.
In any company, accountants carry out the role of proper recording, summarization, clarification, and presentation of the organization's financial status by publishing the financial statements. This means that the accountants determine the company’s financial position and report their findings to the stakeholders ( Bhabra et al., 2017) . On the other hand, the management ensures the smooth running of the organization. The management relies on the reported organization's financial status to make sound decisions that guarantee the existence of the organization in the competitive market. They are also responsible for promoting the organization's value in the face of the public.
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Sarbanes-Oxley Act has forced the management and the accountants to disclose all the company’s weaknesses, if any, which implies that the organization's financial reporting internal controls are ineffective. The accountants and the management have diverse views terming Sarbanes-Oxley Act as controversial. First, they have raised concerns over the required resources to ensure full compliance with the act, which incurs high costs. According to researchers, the total compliance cost for many companies it’s about 1% of their total revenues ( Chu et al., 2018) . Second, the management has also raised concerns over the fee needed to pay auditors alongside the compliance fee. Therefore, the management has outcried that the new rules do not outweigh the costs.
Sarbanes-Oxley Act has played a significant role in eradicating deceitful practices and reinstating investors’ confidence through increasing the financial statements' reliability. However, despite the act tightening the internal control processes, it has faced great opposition from the management. The management was astonished by the need to comply since they see the act as a burden with the company’s operations. They claimed that the Sarbanes-Oxley Act treated them as if they are dishonest and as if they have failed to manage the organization's financial resources appropriately. Small enterprise management also claims that the act was aimed at creating a monopoly among large companies by increasing the cost of the operation.
On the other hand, the accountants rejoiced and praised the act since they feel their work has been made easier since the management roles are now legally controlled ( Gu et al., 2017) . However, the management also opposes the act because it gives the auditors the power and authority to check and report the management’s soundness and effectiveness. The managements also believe that the auditors are responsible for monitoring the management's work and controlling that internal organization without any interventions.
The management and the accountants oppose the Sarbanes-Oxley Act since it withdraws some of the benefits they enjoyed to improve the company. The accountants and the management also opposed the act since it closed the backdoors and loopholes used to defraud and scrutinize the investors by falsifying the organization's financial status through false reporting. The act gave the audit committees the power to report the financial viability ( Gu et al., 2017) . The company's financial position reporting roles were shifted from the accountants to the auditors. The accountants and management role remained only to certify the reports' credibility and produce documentary evidence related to transactions. The act, therefore, enacted harsh punishments to the management and accountants if they fail to comply with the enacted legislation.
Conclusion
Tighter legislation was enacted by the Sarbanes-Oxley Act, which controls the company’s governance and internal controls and processes. Therefore, the act improved the investors’ confidence to buy shares in public companies, enriched financial reporting reliability, and reduce fraudulent practices within the company. The accountants and management opposed some legislation, but some were acceptable. For example, some legislations gave the accountants power over the management, and therefore they supported them while the management opposed them.
References
Bhabra, H. S., & Hossain, A. T. (2017). The Sarbanes-Oxley act and corporate acquisitions. Managerial Finance .
Chu, B., & Hsu, Y. (2018). Non-audit services and audit quality---the effect of Sarbanes-Oxley Act. Asia Pacific Management Review , 23 (3), 201-208.
Gu, Y., & Zhang, L. (2017). The impact of the Sarbanes-Oxley Act on corporate innovation. Journal of Economics and Business , 90 , 17-30.
