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Why do you think that misconduct will continue despite regulatory laws like Sarbanes-...

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granny54 | Student, College Freshman | Valedictorian

Posted May 23, 2013 at 5:55 AM via web

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Why do you think that misconduct will continue despite regulatory laws like Sarbanes- Oxley?

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akannan | Middle School Teacher | (Level 3) Distinguished Educator

Posted May 23, 2013 at 11:14 AM (Answer #1)

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One reason why the reality of corporate misconduct will not entirely disappear is because it will find new ways to circumvent laws like Sarbanes- Oxley.  The forces of corporate misconduct will always be ahead of the legal remedies designed to stop it.  For example, while the Sarbanes- Oxley regulation helped to tighten the rules on corporations floating their companies on American Stock Exchanges, companies realized that the law does not limit American businesses floating their endeavors on foreign markets.  Moving to the London or the Hong Kong stock exchanges enable a form of flight from the regulatory timbre of Sarbanes- Oxley.  This becomes one reason why corporate misconduct can and will continue even in the presence of regulatory measures like Sarbanes- Oxley.

Another reason why corporate misconduct will continue even with Sarbanes- Oxley would be due to how the fundamental relationship between corporations and the auditors has not been changed.  The "Client pays" approach ensures that auditors hold some level of indebtedness to the corporation that has retained the auditing firm. In order for the auditor to "go public" with possibly findings of malfeasance or skepticism, the auditing firm is essentially "biting the hand that feeds it."  In this, the auditing firm is placed in an impossible position:  Go against the client paying its bills or deny the public's right to know.  Regulations like Sarbanes- Oxley have not fully addressed this situation.  In not doing so, little change in corporate misconduct is seen.  The fundamental relationship between Arthur Anderson and Enron, where the former was kept in check through large payments and billing schemes from the latter, has not been resolved through Sarbanes- Oxley.  Until then, the likelihood of corporate misconduct through misrepresentation and the challenge that auditing firms face will be present.

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