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Financial Implications of the Sarbanes Oxley Act

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Discuss the financial impact of SOX and consider its effect on economic growth and enterprise.

As with the Enron, WorldCom, and other crises of the late 90s and early 2000s, the recent scandals and subsequent mortgage crisis were brought about by companies cheating on their balance sheets. Arguably, this has had a more far-reaching impact than the original scandals that resulted in the passage of Sarbanes-Oxley legislation. With this in mind, how effective is SOX?

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One of the problems that we face is that there are so many corporations in the U.S. As the public, we generally don't hear about a case until it becomes massive. The fraud or wrongdoing starts out small, within the company, and then continues to grow over time. This is the case with almost all major frauds, including Enron and WorldCom. By the time the fraud is discovered, it is then usually too late. The SOX is effective due to its oversight capabilities. The PCAOB and SEC typically work jointly in enforcement, even though it is the primary responsibility of the PCAOB. When companies submit financial statements to the SEC that have questionable material or that lack detail in an area, that area then goes under analysis/investigation by the SEC and PCAOB. The company then must respond to the SEC comment letter that is sent, explaining the details of the grey area on the financial statements. It is specifically in this ...

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This solution provides a comprehensive discussion in regards to the financial impact of SOX and economic growth and enterprise.

See Also This Related BrainMass Solution

Sarbanes-Oxley Act (SOX) for Non-Profit Organizations


The Sarbanes-Oxley Act, often called SOX, is legislation that establishes standard practices in financial management for publicly traded corporations. Although the Act does not regulate nonprofit organizations, it has already had a tremendous impact on the way the third sector handles financial matters.

For more information regarding SOX and how it has impacted the nonprofit sector, review Independent Sector's article "The Sarbanes-Oxley Act and Implications for Nonprofits," found at: www.independentsector.org/issues/sarbanesoxley.html.

Also read the New York Times article "In Sarbanes-Oxley Era, Running A Nonprofit Is Only Getting Harder" found at:

Use the following questions to complete your discussion of this important and timely topic in nonprofit management. Your final submission should be in narrative, essay format, and should synthesize your ideas as well as incorporate references from lecture notes, text readings and other outside sources. Once complete, the Word document should be submitted through the Assignments Drop Box


1. How has SOX impacted nonprofit organizations? How do these implications affect the role of the Executive Director and the skills required for this position? How do these implications affect the role of the Board of Directors?

2. Why is it important for nonprofits to react to legislation such as SOX when the sector is not included in the regulation? How do these reactions aid and hinder the professionalization of the nonprofit sector?

3. Discuss how SOX increases an organization's accountability to a variety of stakeholders, but particularly to financial contributors.

Accountability is an essential ingredient for non-profit agencies. SOX created Nonprofit software which is a class of software tailored to helping nonprofit agencies with some of the many challenges they face that do not exist in the corporate sector. This offers guidance and security for the stakeholders and a clear way for future financial contributors to clearly understand the financial need of the non-profit organization. The focus of nonprofit software ranges from volunteer and event management to fundraising and fund accounting. Nonprofit accounting software, which helps nonprofits track individual funds as separate entities (as required by law), also contains the more generic accounting functions found in corporate software, such as a general ledger, inventory, job/project tracking, and payroll. Many nonprofits find the use of nonprofit software to be a very attractive alternative to adapting standard corporate software to their needs.

4. What are the positive impacts for the nonprofit sector in regard to SOX? What are the negative impacts for the nonprofit sector in regard to SOX?

5. What are the other important issues related to this topic?

I need help with these questions to help point me in the right direction. Thank you.

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