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The Sarbanes-Oxley Act is a law that was enacted with the aim of protecting investors from financial scandals that hindered profitability of a business. As such, it also protected other users of financial statements who included the general public from errors of misstatements in accounting. It was introduced in 2002 to bring about important changes in the regulation of corporate governance, as well as in the finance departments of different companies. The act specifies the information that businesses should maintain. It also dictates the period for which the records should be kept. The act is applied mandatorily to all companies in a country. This means that all organizations in a country must comply with it.
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The act also requires that companies comply with effective audit procedures. It also provides recommendations to various problems affecting the business. These problems include pollution and other disposal issues that affect productivity of the business. The act dictates how these problems should be dealt with.
The Sarbanes-Oxley Act holds that organizations should have the obligation of conserving the environment. Big Box Stores are retailers based in America. The company has to incur costs, so as to prevent environmental pollution. These costs should be recorded appropriately in the financial statements of the business. This manifests good finance practices.
Where the company has waste that can cause environmental degradation, it should look for effective ways of disposing it. As such, it might be forced to incur extra costs in such disposals. These costs are necessary since they are seen to protect the environment. They should be clearly shown in the financial statements of the company.
The act is seen to benefit professionals in running their business activities. It appreciates some aspects that are linked with good financial practices. These aspects are seen in documentation and control of the business. The act requires that information technology should be applied in businesses in order to ensure that there is a proper documentation. This makes it easy for businesses to account for all its activities.
Proper documentation ensures that there are no costs incurred in search for past information. Therefore, the act looks into the future of the company. Additionally, proper records help in forecasting performance of the firm. It also ensures that professionals report correctly to the users of financial statements.
Sarbanes-Oxley Act instills confidence in potential investors. This is because it ensures that businesses prepare financial statements that are free from fraudulent errors. Investors need to have a clear picture of a business. This feature is enforced by the act and thus investors tend to believe in the financial statements. Investors use financial statements in making decisions on where to invest and where not to do so. Individuals in a company should keep proper records in their various departments to ensure accuracy of the information reported in the financial statements.
It is necessary that a company maintains a good image to the communities residing near it. As such, companies should avoid environmental pollution to ensure good health of the residents. To do this, companies incur costs that are meant to protect the environment. These costs play a major role in maintaining a good image of the company. For example, Big Box Stores need to show a good image to remain in business.
However, these costs have the effect of reducing profits of the firm. This is because they might be too large depending with the method of disposal used. Additionally, some companies might overstate such costs so as to reduce their taxable income. This results in fraudulent errors which are against the Sarbanes-Oxley Act.
Therefore, Sarbanes-Oxley Act is mandatory to all companies. It was enacted with the aim of preventing errors in the financial statements. This gives confidence to investors since they are sure that what has been reported is true. Professionals also benefit from the act since they maintain good records of the business. This helps professionals forecast the performance of the business. Enterprises also have the obligation of ensuring conservation of the environment.