The implementation of the Sarbanes-Oxley Act means more operational costs for American business. By placing a fiduciary duty on company boards and auditors, the act enhances organizational accountability, reports the Houston Chronicle. The Act has restored investor confidence in the U.S. market by plugging gaps through which firms could defraud individual and institutional investors.
The Sarbanes-Oxley Act places a fiduciary obligation on auditors, company executives and board members, making them personally liable for their firms’ wrongdoings, explains the Houston Chronicle. A higher sense of obligation acts as a check on corporate misconduct. Since the enactment of the legislation, organizational boards have become more attentive in their oversight and have put greater efforts toward enhancing corporate reputations. Firms are now less tolerant to ethical lapses and are aware of the risks they face, notes the New York Times.
Compliance with Sarbanes-Oxley means higher operational costs for businesses. The act requires organizations to submit annual audits, and the scope of the audits has increased. In turn, public companies have to pay more for audits, while smaller enterprises have to contend with upfront costs of setting up internal controls, according to the Houston Chronicle. To meet the Sarbanes-Oxley guidelines that require segregation of accounting duties, firms must hire more workers, which may place strains on smaller entities.