In the world of business and finance, nothing is more important than accountability, communication, and transparency. As we have unfortunately witnessed in the past, the lack of any or all of these factors can be what keeps a startup from being funded and even cause the downfall of large corporations. The Sarbanes-Oxley Act has changed the way that much of the world conducts business, and though it has been over a decade since the law was initially enacted, the effects of the law are still reshaping the way we do business all over the world.
To understand why Sarbanes-Oxley has had such an impact, it’s important to understand the issues which led to its creation. America, in 2002, had been dealt the simultaneous blows of the bursting of the internet stock bubble as well as the corporate accounting scandals of companies such as Enron, Tyco International, and Worldcom. These scandals had not only uncovered that investors had been misled on a grand scale and lost immense sums of money, but also severely damaged the reputation of the entire business community. Upon examination of problematic companies and the regulatory environment, the perfect storm emerged: banks were found guilty of lending money without practicing due diligence to companies where unscrupulous executives distorted earning numbers for personal gain; boards of directors instituted irresponsible or ill-informed auditing practices; and auditing firms, with potential conflicts of interest, were left to self-regulate as a result of an underfunded and understaffed SEC.
The Sarbanes- Oxley Act set out to change these shortcomings and quickly had a direct and positive impact which subsequently helped to restore trust between the business community, the investment community, and the consumer. Starting at the top, Sarbanes-Oxley gave the SEC greater power, funding, and oversight responsibility concerning financial disclosure. Since the epicenter of the problem was related to inconsistent auditing, standards were established to verify auditor independence, thus eliminating conflicts of interest, and a Public Company Accounting Oversight Board was established in order to assure compliance to best practices. Finally, in dealing with executives who attempted to “massage the numbers,” stricter penalties for more clearly defined incidents were enacted, forcing companies as well as executives themselves to take individual responsibility for the numbers submitted in financial reports.
Living in a global marketplace, the issues that created the problems which Sarbanes-Oxley attempted to solve were not solely confined to the United States. Other countries, such as Canada, Germany, and (later) Japan, also took initiative and enacted their own forms of the Sarbanes-Oxley Act to combat any potential for inconsistencies or lack of oversight. At the supranational level during this time, many nations as well as the EU started to adopt a harmonized code of International Financial Reporting Standards (IFRS). Though the implementation of Sarbanes-Oxley style regulation as well as harmonized reporting standards has helped to create an environment of honesty and transparency, this doesn’t mean that it is a perfect world: there are still implementation issues (for IFRS) and criticisms regarding the effectiveness of Sarbanes-Oxley. In order to assure that compliant standards exist within your company and all departments and executives are well informed of the role that they play in ensuring compliance, it is essential that all facets of regulation are well understood and all information is effectively disseminated.
The Sarbanes-Oxley Act marks a milestone for financial reporting and is an indispensable reference work for all Corporate Compliance Departments. EVS Translations now offers the first and only available German translation of the Sarbanes-Oxley Act on the market today. The text was translated and reviewed by our in-house team of native German translators and financial specialists. As one of the world’s leading language services providers to financial and compliance departments, we provide professional language services in over 50 languages and the quality of all our services is guaranteed by our ISO 9001: 2015 and ISO 17100 certifications.
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