The Costs, Benefits and Unintended Consequences of the Sarbanes-Oxley Essay

The Costs, Benefits and Unintended Consequences of the Sarbanes-Oxley Act 2002 - Essay Example The Sarbanes-Oxley Act, which was enacted by the congress on 30th July 2002, benefited the corporate sector but not without posing certain challenges to public companies that was required to implement it. The Sarbanes-Oxley Act aimed at restoring the investors’ confidence, which had been extinguished by the numerous frauds that had affected or even led to collapse of different companies. This paper is a critical review of Gebremichaels’s article and will give a summary of the article, critically evaluate the arguments in the article by analyzing the weaknesses, limitations, and problems of the article. Additionally, the paper will focus on the strengths and usefulness of the article particularly for study purposes. Summary Gebremichael’s (2012) article â€Å"The Costs, Benefits, and Unintended Consequences of the Sarbanes-Oxley Act 2002† claims that Sarbanes-Oxley (Sox) Act of 2002 is the most discussed legislation in the capital market. The research was c arried out with the aim of evaluating how implementation of the SOX Act had affected the capital markets, economy, and entire corporate sector in the United States. The study focused on aspects of the SOX Act such as the benefits, consequences, and cost of its implementation. Gebremichael attributes the importance associated with the SOX Act to the consequences the act continues to have on United States public company as well as the entire economy. According to the article, the Act was enacted to curb accounting frauds, and regain the investors’ confidence by bringing transparency in the United States stock markets. The Act would do this by improving the way companies conduct their financial transactions through introducing corporate financial reporting in addition to modifying the way public companies are audited. The article finds section 404- Management Assessment of Internal Controls to be the most important and expensive provision to implement. This is because complete i mplementation of this section will have on companies. The article claims that the costs of implementing section 404 are too high while the benefits are minimal. This has already led to withdrawal of some foreign companies from the United States stock market. According to the article, holding executives, auditors, accountants, attorneys, as well as director responsible for financial regulation would help reduce cases of frauds. The article gives an account of Enron, one of the companies that collapsed due to auditing problems. The auditing problems led to bankruptcy and eventual collapse of the company. The account is important since frauds within Enron Company and Worldcom are among the companies that triggered the enactment of the SOX Act. Strengths, Problems, and Weaknesses of the Arguments in the Article The article puts forward a number of issues to demonstrate that the SOX Act has had both beneficial in addition to negative impacts on the United States public companies and the entire economy. Gebremichael argues that implementation of the SOX Act has enforced extra costs on companies. Most of the costs are attributable to practices such as audition as well as processing of financial reports, which are some of the requirements that public companies must meet. The major costs are in the time that managers must dedicate to overseeing that financial statements are processed accurately. This is a significant argument since directors and Chief Executive