The Sarbanes–Oxley Act of 2002 has had significant effects on corporate governance and the reporting of financial statements in corporations in the United States since its inception. The act was driven by the need to curb the runaway unethical conduct by corporate executives’ in large corporations in the United States after the exposure of widespread gross corporate misconduct at Enron, WorldCom, Adelphia, Tyco International and Peregrine Systems (Garner, McKee, and McKee 16). Such corporate scandals were responsible for the loss of shareholder funds and the preceding collapse of the entities leading to massive loss of employment and decline in investor confidence in the United States financial markets.
The Sarbanes–Oxley Act of 2002 was resulted in the creation of the United States Public Company Accounting Oversight Board (PCAOB) (Green 17). The board has been charged with oversight of corporate governance, auditor independence, internal controls and disclosures made by entities in their respective financial statements. In addition, the corporate scandals necessitated the need for strict and rigid financial governance regulations. The act has been beneficial to the United States financial markets and corporations. It has enhanced the confidence of investors in the financial markets of the united thus enhancing investments made in corporations by both local and foreign investors.
In addition, the act has been divisive given that it resulted in increased duties and associated costs of disclosures for public corporations and accounting entities. The Sarbanes Oxley Act introduced complex measures that have been associated with the decline in competitiveness of the United States Stock Exchange (NYSE) as compared to other modern and competitive financial markets around the world. However, the act accomplished its role of enhancing the security of investor funds and interests in corporations.
Generally Accepted Accounting Principles (GAAP) and the international financial reporting standards IFRS are the two primary frameworks applied in financial reporting activities in modern corporations. The United States GAAP provides a framework that is largely applicable for accounting purposes in the United States (Epstein, and Jermakowicz 21). On the other hand, the IFRS is a worldwide standard that is applicable to reporting standards used by modern corporations. The United States GAAP is restricted by the presence of clauses and regulations that are aimed to suit the needs of the government as well as corporations in the United States.
On the other hand, the IFRS is largely an accepted accounting standard around the world irrespective of the country. Recently, the United States has been moving towards the IFRS as a means of enhancing the entry of multinational corporations into the country. The IFRS and the respective clauses and regulations are enforced by the IASB as opposed to the GAAP which ism regulated by the United States’ Financial Accounting Standards Board (FASB) (Epstein, Nach, and Bragg 19).
The convergence of the IFRS with the United States’ GAAP would provide an effective standard for governing financial reporting activities in the united states. In addition, it would also ensure that corporations in the United States adhered to internationally accepted financial or accounting standards of practice. In essence, this enhances the position of firms in the United States as firms that adhere to international standards of financial reporting and general accounting standards.
Epstein, Barry J, Ralph Nach, and Steven M. Bragg. Wiley GAAP 2009: Interpretation and application of Generally Accepted Accounting Principles. Hoboken, N.J: Wiley, 2008. Print.
Epstein, Barry J, and Eva K. Jermakowicz. Wiley IFRS 2010: Interpretation and Application of International Financial Reporting Standards. Hoboken, N.J: Wiley, 2010. Print.
Garner, Don E, David L. McKee, and Yosra A. A. McKee. Accounting and the Global Economy after Sarbanes-Oxley. Armonk, N.Y: M.E. Sharpe, 2008. Print.
Green, Scott. Manager’s Guide to the Sarbanes-Oxley Act: Improving Internal Controls to Prevent Fraud. Hoboken, N.J: Wiley, 2004. Print.
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