MF Financial Acumen and Sarbanes-Oxley (SOX) – Significance in public companies

MF

Financial Acumen and Sarbanes-Oxley (SOX) – Significance in public companies

Part 1: Financial Acumen

Financial acuity- Review of articles

According to Prince (2008), financial acuity is a skill that should be adopted so that sound financial decisions can be taken. The purpose of developing financial acuity is to ensure maximum profit. It involves the correct usage of financial knowledge. The knowledge would be useful while executing financial decisions. The author in the chosen article highlights the importance of experience and expertise. An experienced individual would be able to deal with changes in income and track records. They can figure out the sales revenues, shrinkage inventory and taxes. This, in turn, would allow the individual to handle financial calculations. Similarly, expertise is also necessary and advanced knowledge of financial matters would allow the individual to make decisions regarding buying assets, investments and cost reduction. A person can gain expertise only after dealing with the financial matters of the company.

The second article on financial acumen suggests that new ventures can survive in the market only after an increase in the financial literacy of managers (Wise, 2013). The author suggested that adapting improved financial tools such as financial ratios and financial statements would allow the managers to increase the efficiency of the new venture. Primary research was conducted on 509 Canadian entrepreneurs. They have received a startup loan after participating in the Canadian Youth Business Foundation. The findings of the study suggest that the development of financial acumen among the young entrepreneurs led to an increase in the financial statements. Additionally, the entrepreneurs are less likely to close the new venture and more likely to repay their loans after an increase in the financial acumen. The study concludes that entrepreneurs who possess higher financial acumen are more likely to survive in the market.

As per Hynes (2006), financial acumen among workers within a power plant is as necessary as a technical skill. Training and literacy in financial matters would help the personnel to make effective decisions. They will understand the inputs and outputs of financial decisions. The author has conducted secondary research, and the findings suggest that even experienced personnel are unable to perform effectively if they lack financial acumen. Knowledge in financial matters would help companies to gain competitive advantage along with the sustainability. It is vital to gather knowledge regarding investments. Notably, in the case of human capital management, the knowledge is necessary. The need of the hour is to train the workforce as effectively as possible and customize the needs of the firm.

Benefits of developing financial acumen- A brief overview of personal experiences  

Establishing financial acumen within a firm would allow employees to understand the mechanisms of generating higher revenues. This, in turn, would enhance the decision-making process within the organization. When employees will be able to develop financial acumen, it would be possible to enhance the overall productivity as well as the efficiency of the firm. The purpose of running a business is to achieve the goals and objectives of the company. Therefore, financial literacy would contribute positively to the growth of the company. The budget of the company would be in control, and the process of resource allocation would be effective (Zaloom, 2009).

Personally, I have realized the significance of having financial acumen after working for a small firm based in the U.S. The firm operates in the pharmaceutical industry. I have witnessed that while supplying medical products to consumers residing in different nations, the price of products tends to fluctuate. The top-level management of our company has been experiencing issues while keeping track of such fluctuating prices. A lot of factors influenced the prices of products, and as part of the marketing department, I realized that knowledge in these matters is vital for contributing to the success of the company. Gradually, the company created a culture where employees were trained in basic financial matters.

Part 2: Sarbanes-Oxley (SOX)

Significance of SOX in American businesses

1. The rationale for SOX- The SOX Act has been established to review and monitor the internal systems of public companies (Romano, 2004). The purpose is to ensure effective management of the companies. An auditor is responsible for conducting the audit as effectively as possible.
2. Provisions of SOX- The Act suggests that stock exchange-listed companies must have an independent audit committee. Moreover, the CEOs and the CFOs must ensure the certification of the firm’s financial reports. Again, it also states that corporate executives might face life-long imprisonment in case they misuse the financial statements of the company.
3. Enforcement of SOX- The U.S federal government enforced the Sarbanes-Oxley Act, 2002. It is alternatively referred to as the “Public Company Accounting Reform and Investment Protection Act.” It was enforced because corporations such as WorldCom and Enron have been subjected to major scandals. As a response, the SOX Act ensures the regulation and inspection of various accounting firms. Mainly the auditors are responsible for overseeing the activities of the firm.

References

Hynes, J. M. (2006). The power of financial acumen: when a plant staff understands the financial whys, whens, why-nots and what-ifs behind the decision-making process, the company and its shareholders win. Power Engineering, 110(4), 34-39.

Prince, E. T. (2008). Business acumen: a critical concern of modern leadership development. Human Resource Management International Digest.

Romano, R. (2004). The Sarbanes-Oxley Act and the making of quack corporate governance. Yale LJ, 114, 1521.

Wise, S. (2013). The impact of financial literacy on new venture survival. International Journal of Business and Management, 8(23), 30.

Zaloom, C. (2009). How to read the future: the yield curve, affect, and financial prediction. Public Culture, 21(2), 245-268.