Effectiveness of SOX Legislation
In an argument of loyalty for instance, an ethical code might need to make a distinction and separation of personal interests from organizational interests. Most of the time, conflict of interest is remedied by avoiding the conflict. There might however be required for recusal and disclosure when the conflicts are present and unavoidable. Executives and members of the board are required to make known any associations that could bring about the suspicion of interests that are conflicting such as financial interests or family interests. Once put open, the conflicted party can be decided if he or she can proceed in participating in the decisions or not. It is their personal responsibility to understand that these laws and regulations are applied to their positions.
Individuals are time and again be directed by codes to resources to obtain expert guidance such as legal counsel, immediate supervisors and an ethical office. It is expected for decision makers to apply law, policy, personal values and company values as a measure of determining what is most appropriate for the organization. Internally Reporting Violation of the Code All employees are responsible of protecting the organization’s interests though reporting misconducts that are suspected or observed. It is a requirement by the commission’s code for every company to single out appropriate individuals who the reports about violations should be submitted to. This is still faced with hurdles as PCAOB still insists on audit firm rotation. Fraud and financial abuse might be attributed to the SOX reporting requirements that are enacted in its ethical codes.
As indicated by Curtis (2014), a good number of small companies decide to convert into private entities so that they can avoid these reporting requirements. This in turn translates to fall in the compliance cost among small firms. For those companies which remain to be public corporate, they have to practice financial fraud in order to cover up the expenses spent in the SOX reporting which are very expensive. Recommendations on Potential improvement of SOX based on the Research The first recommendation that I can suggest to be implemented by SOX to help in reducing financial frauds and abuse is to implement forensic accounting and procedures for fraud examination. As at present time, the roles of forensic accounting are stated nowhere by SOX when they may play a big and important role when well defined.
Although SOX recommended for external auditors to conduct an audit in companies, their roles are limited to only determining financial statements’ fairness and giving out an opinion regarding their finding (Alabede, 2012). Identification of fraud is part of their duty in case they come across an unusual transaction, but this is not their principal role in the organization’s financial statements. Forensic accounting on the other hand is responsible for identification of practices that are fraudulent in the transactions as the information presented is analyzed for this purpose. Organizations should also implement fraud detection strategies to prevent occurrence of financial statements frauds. The detection methods should be made visible to all employees and other shareholders within the organization. This can be achieved by implementing a ruler monitor module in form of a data mining framework which will keep watch of organizations financial ratios and indicate any anomaly (Gupta & Gill, 2012).
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