- Pages: 2
- Word count: 404
- Category: Audit
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The U.S. government created The Securities and Exchange Commission in 1934 in order to monitor the U.S. financial markets. This commission continues to create legislation which is tightening reporting standards today. The Sarbanes-Oxley Act of 2002 is a great example of what happens after the legislation that is being created fails miserably. Small businesses get hurt in ways that the large businesses do not. Small businesses have to follow the same rules and regulations as the large businesses, but the large businesses do not feel the impact of any financial hits as the small businesses do. Professional accountants have to engage with the clients in different ways now than they did before. They are not allowed to be involved in more than one area of the financial areas of a business.
Small businesses may be required to use more than one public accountant to complete services, generally, one accountant for external audits and another for tax advisory or general accounting services (Vitez & Media, 2014). Because they have to pay money in order to stay in good standings with the Public Company Accounting Oversight Board, they accounting companies will pass on the fees to the clients in order to stay profitable (Vitez & Media, 2014). Operating costs have gone up for small businesses because of needing to meet SOX requirements. Small businesses have to develop internal controls to safeguard their financial and operational information. Using a professional accountant is an operating cost that the business will need to incur in order to set up and implement the internal controls.
If an internal audit is needed to be done, some businesses are unable to use their own employees and so they must hire an outside accountant to complete this task. Small businesses usually need to hire personnel for accounting purposes in order to meet SOX guidelines. Companies have to implement a strong segregation of accounting duties according to SOX requirements. This segregation is to ensure that one person is not responsible for too many accounting functions which could make for easy opportunity to embezzle company funds. Failing to follow the SOX guidelines can lead to serious fines and even jail time if it came to it. Businesses may even be forced to close its doors until they are in compliance with the SOX guidelines.
Vitez, O., & Media, D. (2014). The Impact of Sarbanes Oxley on Small Businesses. Retrieved from http://smallbusiness.chron.com/impact-sarbanes-oxley-small-business-3797.html