Free «Review of Sarbanes–Oxley Act» Essay

Review of Sarbanes–Oxley Act

Sarbanes –Oxley Act is an American competitive and corporate accountability act that was established in 2002. The act was initiated because of the environmental issues and the bill’s passage into is a critical standpoint that cannot be overlooked by non-profit organizations. This is attributed to the ethical effects and the criminal penalties that Sarbanes –Oxley Act imposes on the present business environment.

The first ethical effect is the need for the current business environment to adhere to the accounting and corporate standards so as to prevent the government from regulating the governance of such businesses. In other words, through Sarbanes –Oxley Act, audit members might be forced to develop honesty as the best policy instead of the long standing, “what-you-don’t-know-can’t-hurt-you” attitude. In addition, it would be ethically hard for non-profit organizations to ensure a well-balanced and diverse board as required by the Sarbanes–Oxley Act because of insufficient financial literacy and experts within non-profit organizations.

The other ethical effect that Sarbanes –Oxley Act will impose on non-profit business environment is the cost compliance principle. According to “The Guide Star” article, cost compliance principle entails enacting reliable internal financial controls; proof of authenticity of the controls and financial statements; the attestation of the statements by an independent auditor. Since the independent auditors are usually not paid by non-profit organizations, using Sarbanes–Oxley Act would offer an accurate and objective report on the financial statements thereby would offer actual financial records that would eliminate instances of corruption and misappropriation of financial records.

Besides ethical effects, Sarbanes –Oxley Act has varied criminal penalties which include: the insider transactions and conflicts of interest. According to the Act, either directors or executives of organizations are liable to penalty if they secure a loan with non-profit organizations. The other criminal penalty provided by the Sarbanes –Oxley Act is obstruction of justice and securities fraud; a criminal offense that is punishable with either 20 or 25 years imprisonment.

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