A. I chose Sarbanes Oxley Act (SOX) to be my policy. The goal of SOX was to fix auditing of U.S. public companies, consistent with its full, official name: the Public Company Accounting Reform and Investor Protection Act of 2002. By consensus, auditing had been working poorly, and increasingly so. The most important, and most promising, part of SarbanesOxley was the creation of a unique, quasi-public institution to oversee and regulate auditing, the Public Company Accounting Oversight Board (PCAOB). It protects the investor from corporate fraud and to force executives to strengthen corporate ethical standards, but moreover, to solidify that the US market remains strong and that it is not only open for business, but it is a safe place to work and invest.
Foundation: Market Failure and Information Asymmetry????? According to Jasso's article " Sean Jasso Article on Sarbanes Oxley and Market Failure" market failure – a circumstance in which the pursuit of private interest does not lead to an efficient use of society’s resources or a fair distribution of society’s goods. When the market fails, society looks to government primarily for its ability to create laws and allocate resources on a broad national and global scale.
Policy type: Regulatory, SOX, with its clear regulatory mandate to reform corporate ethical behavior, is a tax-like cost that, like pollution control, is intended to help the greater good by increasing investor confidence through stronger transparency requirements as well as strict punishments for executive fraudulent behavior.
1. No matter how important the need for change may be, getting Congress and the President to pass and sign legislation is intended by design to be no easy task and to be political. The difficulties and opportunities lie in the politics – the struggle for power, priorities, and positioning. People debate continues over the benefits and costs of SOX. Opponents of the bill claim it has reduced America's international competitive edge against foreign financial service providers, saying SOX has introduced an overly complex regulatory environment into U.S. financial markets. Proponents of the measure say that SOX has been a "godsend" for improving the confidence of fund managers and other investors with regard to the veracity of corporate financial statements.
Cost- It has been very costly – regarding 404.For smaller companies it’s even harder – such as new IPOs with 0 to millions in revenues. It is in Title IV that the notorious Section 404 is located. Titled ‘Management Assessment of Internal Controls, Section 404 is what the end user of SOX, that is, the corporation itself and its CPA firm, has the most difficulty due to the compliance standards that essentially add the marginal costs to the firm. According to a survey by Korn/Ferry International, Sarbanes–Oxley cost Fortune 500 companies an average of $5.1 million in compliance expenses in 2004, while a study by the law firm of Foley and Lardner found the Act increased costs associated with being a publicly held company by 130 percent." Benefit- Companies are becoming more transparent. SOX is good for business for understanding how the business operates and for the consumer. greater awareness and ownership of business process owners [managers of functional departments]. Also, auditing committees are more interested in your ‘voice’ – taking the audit more seriously today – audit committees are much more engaged and a more diligent to their fiduciary requirements – partners and staff are more engaged and the clients are more interested … hence, good for confidence to be restored.
Yes, i think Sarbanes Oxley Act is financially feasible, even though it may add marginal cost to some firm but it outweighs the cost of market failure and information asymmetry which include higher unemployment, lost insurance, and employees lost retirement funds. The most important is the investors lost the...