Business law represents a set of laws and rules applied in investments and businesses to govern and ensure the right relationships among businesses or people. The laws are established as a way to control market, reduce or regulate undue competition, provide a neutral playing ground for all stakeholders, and to protect consumers' interests. They involve all that has been put in place to be followed for the common good of people engaged in commerce or trade. The world money market is never fair. However, if left ungoverned, there will be unnecessary exploitation of poor consumers for the profit of business firms. Between 2000 and 2002, a series of the largest global corporate frauds occurred, most notably Enron, WorldCom, and Tyco. It exposed a major problem involving a variety of factors. The American Senate inquired about the issues and passed legislations to handle the ones related to inadequate accounts oversight, lack of auditor independence, and weak corporate governance among others. The result of these sittings and hearings was the formation of the Securities and Exchange Commission (SEC). The Sarbanes-Oxley Act of 2002 (SOX) was enacted in 1997 to enhance standards of public companies' boards, management and public accounting. The Dodd-Frank Wall Street Reform and Consumer Protection Act were enacted in 2010. They are aimed at causing significant and positive changes to financial regulations in the United States. They are to affect the financial regulatory system and all other parts of the financial service industry. The two acts are the most important laws in accounting and auditing.
Sarbanes-Oxley Act of 2002
The major elements in the SOX are the establishment of a public company accounting oversight board. Its functions are to ensure independent oversight of accounting firms, provide auditors and create a centralized auditors database. The latter should contain names of approved auditors who can be hired by firms. The implementation of this will prevent companies from working with unsafe, unqualified and incompetent auditors who have personal interests. It will also help in maintaining discipline among them.
Auditors' independence is the second element. This section aims to establish standards for external auditor independence. When a new auditor needs to be approved, this regulation holds the respective requirements (De Vay 31). Auditors hired from outside firms should be allowed to work under circumstances of freedom and independence. They should not be coerced. The hiring process should also follow the guidelines laid down in this provision.
Corporate responsibility is the third element. It contains eight sections that define interactions between external auditors and a corporate audit committee. It specifies the functions of each in the relationship. When an external auditor is hired, his or her relationship with the firm's management and the roles and responsibilities are defined in this provision. The fourth element involves enhancing financial disclosure. It implies that financial transactions must be reported with all documents attached. It helps prevent internal fraud in a firm and gives easy time to the auditor in the process of auditing.
Fifth, the restoration of investor confidence should be analyzed through conflicts of interest. A commission is to be established to continually research market situations and identify areas and issues that can bring about firm-investor conflicts. It will maintain confidence that investors have in a firm, and transactions are not threatened. The sixth element defines the SEC's authority to bar auditors and accountants from practice. It defines the reasons for this. Depending on their conduct and the expected performance and activity level, the SEC has the authority to stop auditors' practice and remove their name from the database. Suspensions can also be done. It helps to ensure that discipline and accountability are upheld (De Vay 32).
The report is the seventh element and includes the consolidation of firms. The latter can be consolidated to allow collective auditing, which makes work easier and prevents specific firm's interference with the process. Other elements of this Act include white collar crimes and penalties. This provision dictates what is regarded a crime in auditing and the penalty it carries. It is used as guidelines by the SEC to discontinue or suspend accountants from their practice. Corporate tax returns, fraud accountability, and criminal fraud accountability dictate the accountability requirements in cases of tax returns, corporate fraud and criminal fraud for those involved. They first spell out what constitutes such frauds and what culprits are expected to do.
Dodd-Frank Wall Street Reform and Consumer Protection Act
As a financial reform act, it has numerous provisions to be implemented over several years. The financial stability oversight council and orderly liquidation authority monitor the financial capacity and security of major firms. This move helps in auditing such companies to determine if they are operating on a shaky ground and whether it is economical for them to continue running. The consumer financial protection bureau was established to prevent oppressive mortgage lending. It makes the market easier for consumers to navigate. It further prevents brokers from exploiting consumers. To the auditor, this provision is important because it helps avoid undue and unrealistic fraud. It also governs other consumer lending services in the country.
The Volcker rule limits speculative trading. It affects the accounting field by making it more difficult for banks to make a profit, while regulating other bank-created situations, such as a credit default swap. Although this will hurt the economy in a short time, it is important in the long run because it helps in leveling the economy and reducing the exploitation of consumers. Dodd-Frank has also established an office of credit ratings within the SEC that has the task of ensuring that agencies provide meaningful credit ratings. It also prevents agencies and firms from taking advantage of consumer economic illiteracy to yield big profits (Skeel 131). In support if the Dodd-Frank Reform, the full implementation of the provisions will prevent the repeat of the economic crisis. However, the Act will initially hurt the economy as people and businesses try to make adjustments.
To sum it up, the financial market requires the laws mentioned above, which can govern the conduct of businesses, professionals, firm investors, and consumers. A governed conduct is a sure way to achieve mutual benefits and avoid exploiting one another in business. Since these laws were put in place at the time when the economy was experiencing a meltdown, it is expected to find flaws in them. To rescue the world economy, the bow string has to be pulled back in order to use enough force to send people into expected heights.
From the professional perspective I support these legislations owing to the facts put forward in each provision. The acts are an important tool to curb fraud cases that have been present for a long time. They also help ensure that professionalism and accountability is maintained in the accounting and auditing sectors. Furthermore, the provisions, especially in the Dodd-Frank Reform, are consumer-oriented. Financial market consumers have been used for the benefit of financial firms for a long time. This history of exploitation is about to come to an end. Lastly, the firm-investor relationship is enhanced in the Sarbanes-Oxley Act of 2002. It ensures that investors are retained for the benefit of the economy. Programs under this act will ensure that conflicting issues are discussed and dealt with in good faith and in good time. I therefore personally and professionally support the acts.
De Vay, Debra L. The Effectiveness of the Sarbanes-Oxley Act of 2002 in Preventing and Detecting Fraud in Financial Statements: A Dissertation. Boca Raton, Florida: Dissertation.com, 2006. Print.
Skeel, David A. The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences. Hoboken, NJ: Wiley, 2011. Print.