Effectiveness of Regulatory Reforms as Deterrent to Frauds and Unethical Actions
After a decade since implementation of Sarbanes-Oxley Act, people begin to discuss its effectiveness as deterrent to unethical and fraudulent activities. This paper analyses the effectiveness of regulatory reforms, and whether it is better using regulation and legal reforms or through ethnical teaching to prevent recurrence of fraudulent cases.
Analysis on Effectiveness of Regulatory Reforms as Deterrent to Frauds and Unethical Actions in Audit
What is Fraud Auditing?
Fraud auditing is an intentional misinterpretation to obtain benefit. (Mintz and Morris 2008, p.53) It includes financial reporting frauds and misappropriation of assets, which are best represented by misstatement of debts in Enron scandal and theft of …show more content…
Strengthening Corporate Governance
Regulatory reforms usually require corporations to disclose whether directors adopt code of ethics. Under SOX s.406 and 407, corporations which do not comply have to provide explanation. Corporations applying these rules show their corporate responsibility in willing to be under public surveillance. Separating board of directors from management team shows independence by avoiding conflict of interests. (Maleske, 2012) The SEC also adopted these rules to promote transparent organizational culture with integrity.
Restoring Public Confidence
One of the major objectives of most reforms is to boost public confidence in auditors and corporations. A decade after SOX implementation, positive feedback from lawyers and analysts has proved salutary effect of reforms in reshaping the image of auditors with impartiality and integrity. (Sweeney, 2012) Parties committing frauds face criminal charges as Public Interest Disclosure Act 1998 protects whistle-blowers from unfair treatment after sounding the alarm. Increased protection and serious sentencing deters many fraudulent acts.
Offset Benefits among Reforms
Regulatory reforms may inhibit