SOX Act and financial literacy- Identifying the need in businesses

SOX Act and financial literacy- Identifying the need in businesses

Part 1: Financial Acumen

Summary of the articles

As per Carlos, Maguire & Neal (2006), the financial acumen of women is vital in today’s age. The author has conducted primary research on women investors at the time of the South Sea Bubble. The study also includes secondary research on women investors. The findings suggest that when women take control of financial matters and contribute towards improving the marketing elements of the firm, the outcomes are positive. In the past, women never used to participate in the decision-making process. However, in order to secure their destiny, women have now started to participate in financial matters. Consequently, it has aided the profit-making process.

According to Kezar & Yang (2010), financial literacy or acumen can enhance the critical thinking or judgmental skills of individuals. By acquiring this basic skill, people can understand complex matters related to money. They will gain insights regarding ways to avoid debt or any financial risks. When individuals gain insights regarding financial planning, they are more likely to invest with caution. The value of money will be clear to them as well. Secondary research has been conducted, and the authors stated that people would be able to manage their daily budget. Moreover, financial literacy can make individuals wise. They will understand various aspects of life and can improve their condition. The authors highlighted the significance of understanding the components of financial literacy such as interest rates, basic budgets, savings, credit-debt cycle and identity issues or safety threats. Literacy can safeguard the resources.

As per Clark, Morrill & Allen, (2012), retirement plans can be determined effectively if an individual possess sufficient financial literacy. The study has been conducted over 1500 workers who are at the edge of retirement. They are employed in large organizations. The findings of the study suggest that respondents possess limited knowledge regarding financial matters. They are unaware of the retirement benefits offered by the company. Since the workers lack thorough financial knowledge, it can severely affect their future outcomes. The findings also suggest that workers are unaware of the eligibility age and ways in which company plans influence the retirement age of workers. This, in turn, will have a negative effect on the wellbeing of workers. Again, the lack of sufficient knowledge on financial matters has a negative impact on the choices they make. Most of their choices are not optimal, and it can affect their future plans.

An outline of the benefits of understanding the importance of financial acumen

A strong or stable base in financial matters can be beneficial for individuals while making management decisions. This, in turn, will ensure profit maximization and attainment of organizational goals. Knowledge regarding debts and the credit-debit cycle will enhance the ability of individuals to allocate resources properly (Lusardi & Mitchell, 2014). The cost-effectiveness of the organization will increase, as well. The managers will be able to attain the goals of the organization, and this, in turn, will ensure the sustainability of the firm. Moreover, knowledge of finances would help employees plan their retirement. The productivity levels of the firm shall increase as well.

Personal experiences

I have been employed as a marketing consultant in a US-based IT firm. The firm conducts its operations across five regions in the U.S. While working there, I have noticed that complete reliance on the finance department can be risky. Most of the managers lack enough skills to tackle financial issues. Therefore, as a marketing consultant, I realized the significance of learning financial skills. It was easy to work as part of the team and retain customer’s loyalty. As soon as I enhanced my knowledge of the usage of financial tools, the process of achieving goals became clear.

Part 2: Sarbanes-Oxley (SOX)

The rationale for SOX- It was established in 2002, and the justification for establishing the Act was to investigate and monitor various control mechanisms within a firm. The public, as well as the private companies, should be monitored by an auditor, and the Act allows the auditors to review the control mechanisms. Notably, in case of financial matters, external auditors must take control so that the incidences of breaches can be reduced.

Provisions of SOX – The major provisions of SOX has been listed below-

• Trading practices of the organization should be reported
• It is essential to create the “Public Company Accounting Oversight Board” or PCAOB as it will oversee the operations of the firm.
• Authorities can ban personal loans demanded by executive officers
• It is vital for companies to establish audit committees that can operate independently
• Imprisonment sentences will be applicable for executives involved in financial thefts

Enforcement of SOX

The federal law in the U.S. has enforced the Sarbanes-Oxley Act in 2002 because a range of accounting scandals has been occurring in the country. The need for establishing audit committees and regulating bodies emerged as a result (Nelson, 1999).

References

Carlos, A. M., Maguire, K., & Neal, L. (2006). Financial acumen, women speculators, and the Royal African company during the South Sea bubble. Accounting, Business & Financial History, 16(2), 219-243.

Clark, R. L., Morrill, M. S., & Allen, S. G. (2012). The role of financial literacy in determining retirement plans. Economic inquiry, 50(4), 851-866.

Kezar, A., & Yang, H. (2010). The importance of financial literacy. About Campus, 14(6), 15-21.

Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of economic literature, 52(1), 5-44.

Nelson, C. (1999). Corporate behaviour: how environmental risk and corporate governance are shaping change–or are they?. Financial Times.