MF Understanding the significance of establishing the SOX Act and the importance of financial knowledge

MF

Understanding the significance of establishing the SOX Act and the importance of financial knowledge

Part 1: Financial Acumen

Article reviews

Research on the existing relationship between financial literacy and the satisfaction level of employees in the firm has been conducted in the chosen article. Data has been gathered from FINRA or “Financial Industry Regulatory Authority.” The study sample consisted of 1488 participants, and data has been gathered by employing the multiple regression analysis technique (Robb & Woodyard, 2011). The results of the research suggest that subjective as well as objective knowledge regarding financial matters can positive influence the behavior of employees. It should be noted that the impact of subjective knowledge is relatively larger than objective knowledge. A range of financial behavior such as income, age, ethnicity, race, and satisfaction is influenced by the accuracy of financial knowledge.

As per Tang & Baker (2016), a relationship exists between an increase in self-esteem and financial knowledge. The paper highlights that self-esteem is related directly to the financial behavior of individuals. The subjective knowledge also plays a vital role in enhancing the self esteem of individuals in the modern society. The authors have conducted a secondary research, and after reviewing various literary sources, they have found that individuals tend to evaluate themselves positively when they possess sufficient financial knowledge. Their self-esteem is directly or indirectly influenced by the degree of knowledge. The authors have consulted the national representative dataset and identified the US adults whose self-esteem issues have been studied. It has been noted that socio-economic factors also influences the degree of knowledge of the individuals. Nevertheless, the focus should be always upon enhancing financial literacy. Overall it can be beneficial for the wellbeing of the individuals.

According to Clark & d’Ambrosio (2003), the financial acumen of workers can help them make effective decisions regarding retirement. Based on the degree of education of the workers, they shall be able to implement the retirement goals. The researchers have conducted a study on the participation rates of employees in financial education programs and the degree of satisfaction. The findings suggest that the communication skills of employees increase when they participate in such programs. Moreover, financial education enhances the knowledge of employees and influences them to save for the retirement. They will be aware of the risk-return factors and ways in which their present consumption levels can influence future decisions. The findings also highlights that the thinking patterns of individuals can be influenced after they participate in financial education programs. Consistent participation is likely to bear positive results.

An outline of the essentiality of possessing financial knowledge and personal exposure

Financial skills can be an effective way of predicting the outcomes of operating in a risky market. Most importantly, a strong acumen would help the leaders of the organization to control budgetary outcomes and ensure the effectiveness of costs. They shall invest after identifying the pros and cons of investing in a project. Every organization has certain objectives, and strong financial skills of managers would help the organization attain the objectives (Hadley et al., 2001). The managers would allocate proper funds and understand the significance of developing formal compensation benefits for the employees. Lastly, the organization would ensure sustainable growth, and the business would flourish in the long run. Reflecting on my personal exposure to financial education, I remember working for an insurance firm. As an agent, my job duties included influencing the customers to buy health insurance policies. However, I soon realized that a lack of basic financial knowledge could led to the loss of the customer’s trust. Therefore, I enrolled in a financial education program and learned the basics such as the debit-credit cycle, savings, financial statements, and similar other elements of the subject. It has been three years in the firm, and I have been able to sustain my customers.

Part 2: Sarbanes-Oxley (SOX)

The rationale for SOX- SOX is the abbreviated form of the Sarbanes-Oxley Act, and it was established because US-based firms have been undergoing corporate breaches. A reform in response to the scandals such as WorldCom and Enron was required at that time. Therefore, in 2002, the government established the Act, and it highlighted the significance of establishing the PCAOB (Engel, Hayes & Wang, 2007). It is a board responsible for looking after the activities of accounting firms.

Provisions of SOX – The Act states that strict investigation and regulation is vital for controlling the activities of firms. It is now mandatory for firms to establish the PCAOB that would overlook and regulate the activities. The reports prepared by CFOs and CEOs require certification and approval. Again, the senior executives do not have access to any personal loan. Companies highlighted in a stock exchange must establish a functional audit committee.

Enforcement of SOX- The Act has been enforced by the U.S government, and the public companies must manage or monitor the activities with the help of an auditor. The auditor must ensure the efficiency of corporate governance and financial data must be secured or safeguarded efficiently.

References

Robb, C. A., & Woodyard, A. (2011). Financial knowledge and best practice behavior. Journal of Financial Counseling and Planning, 22(1).

Tang, N., & Baker, A. (2016). Self-esteem, financial knowledge, and financial behavior. Journal of Economic Psychology, 54, 164-176.

Clark, R. L., & d’Ambrosio, M. B. (2003). Ignorance is not bliss: The importance of financial education. TIAA-CREF Research Dialogue, 78(1).

Engel, E., Hayes, R. M., & Wang, X. (2007). The Sarbanes–Oxley Act and firms’ going-private decisions. Journal of Accounting and Economics, 44(1-2), 116-145.

Hadley, D., Shankar, B., Thirtle, C., & Coelli, T. (2001, August). Financial exposure and farm efficiency: Evidence from the England and Wales dairy sector. In annual meetings of the American Agricultural Association, Chicago.