Aldrich Law Firm, Ltd.
Aldrich Law Firm, Ltd.

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The debate over Sarbanes-Oxley

Every business owner in Las Vegas is familiar with the Sarbanes-Oxley law and its complexities. To address the fraud that led to the collapse of many large corporations, the federal government enacted this law which seeks to establish financial transparency in companies. The Securities and Exchange Commission points out that the law requires companies to use outside auditors, take corporate responsibility for financial reports, release periodic reports on their financial situation, establishes a code of ethics that senior financial officers need to follow, and establishes guidelines for the keeping and creation of records.

Reuters states that in the past 10 years since the law’s creation, companies have given their financial reporting methods a great deal more attention. They issued hundreds of restatements, which corrected errors found in the original financial reports. The harsh penalties associated with a criminal conviction of fraud has also served as a deterrent to people who would be tempted to fudge the numbers a bit. For example, someone who is convicted of mail fraud faces a maximum prison sentence of 20 years.

However, while the law has seemed to prevent the massive fraud that led to the collapse of large companies before it was passed, critics say there are still many things to be concerned over. One issue is the added financial burden the law poses to small businesses which have limited staff. Sarbanes-Oxley requires companies to hire staff for different accounting functions so that one person does not control everything. However, for a small business, it means the business has to hire and pay someone to provide these separate roles. This leads to a higher cost in operations.

The law is limited in some ways from its original intent. The passing of the Jumpstart Our Business Startup Act allows startup companies to go without any internal control checks under Sarbanes-Oxley. The fact that companies must pay for an outside audit was also a large contender and led to a reduction in this requirement. Businesses are also opposed to further expansion of the Sarbanes-Oxley and this could weaken the original intent of the act.

John P. Aldrich
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