Passed after public furor over corporate financial scandals--most notably the 2001 Enron scandal--the 2002 Sarbanes-Oxley Act (SOX) caused more than a ripple in the business world. Considered the biggest change to U.S. federal securities laws in seventy years, businesses now have to comply with requirements set forth in SOX's eleven titles. In addition, corporations must face the "checks and balances" monitored by a public company accounting board. Financial requirements of SOX include the disclosure of companies' internal controls regarding financial reporting and certification of financial reports by company CEOs and CFOs.
Companies work overtime to conform to the standards and have to foot big bills to meet Federal requirements. In addition to objections about the time and cost burdens on businesses, some argue that SOX has centralized company risk management. Critics claim that this centralization leads to caution and ultimately diminishes innovation and opportunity. Others view this caution more positively. In any case, SOX has become an integral part of the business world and good, transparent, financial management has become more important to corporations.
Post SOX Financial Industry Trends
For audit firms Sarbanes-Oxley has been called the "Full Employment Act of 2002." Not only are auditors in higher demand, they are being paid higher salaries. Many system auditors, for instance, have watched their salaries increase by 5% or more each year since SOX legislation. But auditors and accountants aren't the only ones experiencing an increased demand for their services. Information technology (IT) workers with audit skills, in particular, have become sought-after personnel in the business world.
The 2002 scramble to find SOX-educated IT specialists has decreased slightly, but extensive hiring in the field continues. A June 2006 CIO Insight survey supports this observation. When asked if regulatory-spending on IT in 2006 will increase, decrease, or remain the same as 2005, 45% of companies claimed it would increase. Of the companies claiming an increase, 44% were planning a budget of $1 billion or more on IT regulatory issues.
Compliance with SOX has resulted in more than simply added expenses for businesses. Regulations and centralized risk management has helped bolster public confidence in businesses. Company's inner workings are better organized with continuous auditing and monitoring. Internal audits have strengthened relationships with key stakeholders. It's probably no coincidence that the financial markets have made a comeback since SOX was passed. The Dow Jones Industrial Average increased by over 50% from 2002 to 2006.
The Effect of SOX on CEOs and Financial Managers
The accounting scandals that provided the impetus for SOX have placed top executives under intense scrutiny. CEOs and financial managers are held directly responsible for their companies' full compliance with the laws. The most obvious new post SOX responsibility of CEOs and financial managers is to certify the accuracy of financial statements and disclosures.
To feel confident certifying company financial statements CEOs and financial managers must be sure they are complying with the laws. CEOs continue to seek qualified employees who can help them uphold SOX compliance. This has allowed new executives with knowledge of SOX to climb the corporate ladder more quickly.
SOX and Career Advancement for Business Professionals
The passing of Sarbanes-Oxley has been especially beneficial for new graduates with SOX expertise. Businesses are hiring more auditors, accountants, and IT professionals. Even new graduates with little overall work experience can find high-level positions if they know SOX. The top priority for businesses is to hire high caliber individuals who can ensure they meet compliance requirements.
In response to industry demand more financial degree programs are becoming available. Many of these degrees can be earned online or in the evening, allowing students to remain in their current jobs. Professionals with MBAs and relevant work experience have particularly good chances of finding high-level jobs. Even those with bachelor's degrees and SOX knowledge are finding that opportunities abound.
The outlook is bright for finance professionals or individuals interested in pursuing a career in finance. Thanks to SOX, businesses have been forced to enhance their credibility with the public and finance managers can reap the reward with career advancement.