The Sarbanes Oxley Act is a federal law that introduced new and strengthened standards and regulations for public companies in the United States of America in the wake of poor corporate governance and accountability. The act has benefited corporations through the introduction of strict disclosure requirements, enhanced financial reporting controls and increased external auditor’s independence and strengthened the board independence. All these requirements have collectively boosted the confidence of the American public on corporations and the financial markets at large. The provisions have created a state of accountability and transparency making information reaching the investors reliable. This is as opposed to the old tradition in which disclosure requirements were limited to the bare minimum while management was not required to authenticate the financial statement. Consequently, the new provisions have effectively created a state of accountability on the part of corporate managers.
While the benefits are appreciated, it has equally come up with negative effects on the corporations. The newly required disclosures have lead to a substantial increase in the auditing fees and related costs. The Act increases the scope of the audit. It is only logical that the increased scope translates into increased audit fees and related costs. In fact, for small corporations, it has been noted that the disclosure requirements are too much compared to the benefits they accrue. On the other hand, the act has essentially tightened entry and maintenance compliance requirements for corporations in the American market. This has led to effects such as capital flight to less restrictive external markets.
Essential elements of developing and implementing a successful financial plan
In the development and implementation of the financial plan, a number of elements that ought to be incorporated and employed for purposes of success. The elements include budgetary measures, taxation, debt management and the statement of accounts. The financial plan must outline an effective budget that gives the estimates of expected incomes and expenditure for a particular financial year. This involves projections and forecasts in light of the corporation’s activities. A comprehensive financial plan must also illustrate the way in which taxation would be dealt with. It ought to incorporate mechanisms of tax avoidance and related allowances that the corporation can utilize for purposes of minimizing taxable income. The financial plan should reflect equity and debt management framework. The success of a corporation lies in its efficient use of debt. It has to outline the manner in which it intends to exploit the debt available.
Further, statement of accounts and related analysis ought to be reflected in the financial plan. The plan should include the projected statement of financial position, the comprehensive income statement, the cashflows statement, the statement of changes in equity and capital, among other financial statements. In relation to these financial statements, the financial plan should carry out comprehensive ratio analysis, risk analysis, benchmarking, budgetary projections and expected schedule of asset and liability movement. The information obtained from the statements of accounts serves the planning functions. The objective of organizations is to make informed and strategic decisions that improve their performance and profitability. Finally, financial plans do not exist in isolation. Market dynamics and conditions ought to be fully incorporated. Decision making should be a factor of a forecast that blends the past performance with the market conditions.
Gibson, C. H. (2010). Financial Reporting & Analysis: Using Financial Accounting Information (12 ed.). London: Cengage Learning.
Lekatis, G. (2010, April 20). The Sarbanes Oxley Act of 2002. Retrieved October 1, 2012, from youtube: http://www.youtube.com./watch?v=8Hrl2FhOf6s