Sarbanes-Oxley Act Article Analysis - Essay Example

The Sarbanes-Oxley Act (SOX) Introduction This Act is a set of rules commissioned by the Illinois Supreme Court in into federal law in 2002 to regulate corporations following the collapse of mega corporate in the U.S. due to fraud leading to loss of public funds and shutting down of the affected firms (Holt, 2008). The Sarbanes-Oxley Act has several sections with each containing a rule of its own and effect on a corporation. Here is a summary of the main sections. Section 302 gives duty to the CEO and CFO to certify in person that financial reports are accurate and complete and are responsible for any fraud regarding such.

Section 404 demands that a corporation assess and report to the SEC its internal control’s effectiveness with the review and judgment by an external auditing firm. In assisting in implementation of SOX, the Act creates the Public Company Accounting Oversight Board (PCAOB) that supervises the assessment of corporate audits with compliance to SOX. The PCAOB knows the risks of having poor security controls therefore created the Committee of Sponsoring Organizations (COSO) that provides a structure of ready guidelines for implementation of internal controls (Holt, 2008).

However, COSO is unable to give accurate guidelines for operations control. It is the duty of the Control Objectives for Information and related Technology (COBIT) to assist COSO in that aspect by providing safer, acceptable and up-to-date information control mechanisms. COBIT addresses information technology in all its component domains with the assistance of the Information Technology Institute (ITGI) that directly deals with the corporate in handling specific domains. To enable it to cater for more specific control of information systems, ITGI divides security into further branches namely: security policies and standards, access and authentication, network security, monitoring, segregation of duties and physical security (Holt, 2008).

How the Sarbanes-Oxley Act affects the internal control an organization. The outstanding aspect of this Act, auditing, affects the internal control of organizations in several ways. On the negative side: Auditing tends to be expensive and that means the organization spends more money. Lack of an auditor means hiring more staff. On the positive side: Fraud is detectable, thus preventable. In case there is detection of some errors, correcting them cushions the institution against losses. In case of insurance claims, audit reports of an organization act as testimonials.

It is possible to get loans when one presents audit reports of their organization to potential funders. Auditing keeps checks on the staff and management forcing them to maintain ethics. Tax authorities can assess an organization’s tax compliance by use of audited accounts. There are also some other minor demands that come with the Act, for instance compliance to specific acceptable business models, adhering to some policies and procedures and training staff to know how to use certain software or computers in general (King, 2011).

Auditing around the computer and through the computer; the relevance of each, and how it affects an organization. Auditing around the computer relies on a tangible, hard copy trail of audits that are manual or computer-prepared paper documents. There is no test conducted and computer use is not necessary except the auditor and comparison documentation. Auditing through the computer involves running computer programs or software to check for accuracy or accountability. In this technique, an auditor intentionally prepares fictitious transactions otherwise known as test data then runs the system and by examining the results tells whether a client’s system has errors or not.

Auditing through the computer is faster and more accurate, and one can examine large amount of data at a go. Though the set up costs are high, maintenance is cheaper in the end. The disadvantages include possible manipulation of data by virus infection or hackers, frequent updates and maintenance is expensive, it is costly to set up, and one cannot audit with a computer if they are not literate (Ainapure & Ainapure, 2009) Conclusion Similar to all inventions, the regulations on corporate organizations brought by effecting of The Sarbanes-Oxley Act, there are positive and negative repercussions.

Nevertheless, one should note that these laws protect the organizations and the larger public from fraud. In addition to that, it is logical from the comparisons that the advantages of auditing as an aspect under the Act outnumber by far the disadvantages. References Holt, M. F. (2008). The Sarbanes-Oxley Act: Costs, benefits and business impact. Amsterdam: CIMA. Ainapure, V., & Ainapure, M. (2009). Auditing and assurance. King, A. M. (2011). Internal control of fixed assets: A controller and auditor's guide.

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