Sarbanes-Oxley (SOX) rules came about as a result of the accounting fraud identified on behalf of Enron, a publicly traded utility company that was widely held by investors and was regularly audited by one of the five largest audit firms in the world, Arthur Anderson. Once the fraud at Enron was identified and reported on, regulators put in place SOX rules in order to reduce the opportunities for financial reporting fraud that occurred at Enron. SOX rules did, however, impose a significant regulatory compliance burden for public companies that may have contributed to a temporary reduction in the number of private companies seeking to go public.
While Sarbanes-Oxley led to some pretty significant compliance costs associated with complying with these new rules there were some fairly significant benefits that were associated with SOX. Some of these benefits were intended by regulators and some came about as an ancillary benefit of the regulations. A firm specializing in Sarbanes Oxley Texas would have potentially been able to stop Enron.
Investors of a company that utilizes Sarbanes Oxley Texas help can rest assured that the benefits of Sox outweigh the cost.
Greater Emphasis on Internal Controls
The major benefit of SOX is stronger internal controls that benefit both investors and companies. Internal controls can prevent the theft of money from the company by those who would otherwise be able to take funds or assets from a company. Further, it reduces the opportunity for undetected fraud and related risks that are associated with fraudulent reporting and misappropriation of funds by implementing checks on individuals and layers of review that prevent these potentials.
Strong internal controls not only detect fraud but also dissuade many from pursuing fraudulent activities and this is where SOX has had a significant impact on financial markets. Companies are required to put in place stronger controls that not only reduce fraud but also improve financial processes and controls and these controls can both identify opportunities for saving and reduce waste and theft.
Better Protection for Investors
SOX procedures help investors by requiring financial controls that reduce the opportunities for fraud. By having some executives personally responsible for fraud, SOX rules change the risk/reward matrix for executives who may be inclined to aggressively pursue financial fraud, and the mere presence of SOX rules can significantly reduce fraud and offer additional protection for these investors. Investors have additional opportunities for recourse from auditors, executives, and inside traders who perpetrate fraud and have a better opportunity for recovering money as a result.
Better Information for Financial Decision Making
As noted above, Investors are better protected from fraud as a result of the implementation of SOX controls that allow for a reduction in the risk of financial fraud. This should help investors from being exposed to fraud risk but also provides some other benefits as well in the manner of more transparent financial reporting that is provided to investors who can learn more about the company and the underlying operations through expanded disclosures in the financial statements. Astute investors can often identify information that gives them a better leg up when investing.
Even Playing Field and Better Access to Capital
With the presence of SOX rules, many investors feel more comfortable investing their capital into public companies and this will help to serve as a buoy for financial markets. Companies that are honest in their financial reporting will now have a more level playing field associated with financial markets when competing for capital from investors and, theoretically speaking, capital can be deployed more efficiently and effectively as a result of these rules. SOX helps companies to operate more effectively and efficiently than previously and will improve on the right companies getting access to money.
While there is an obvious cost associated with SOX, and challenges for companies, regulators, and auditors, the benefits of SOX often outweigh these costs.