From the studies conducted from the first sample of companies, it is evident that Sarbanes-Oxley Act (SOX) is beneficial to companies. Through SOX, companies adopt conservatism by avoiding abnormal accruals. In addition, companies detect losses at their early stages and hence avoiding them altogether. With SOX, companies are able to increase their real-earnings management compared to prior accruals-based earnings management during the pre-SOX duration. Increased real-earnings management is possible through manipulation of decisions related to actual spending. Moreover, real earnings management is relatively undetectable. The increased benefits of real earnings management have resulted to convenience of time management because financial managers no longer meet frequently for financial forecasting. SOX have had a positive impact on financial companies conducting financial audit. The reliable nature of SOX especially in reporting accruals has lessened financial auditing practices.
It is without doubt that SOX harness investors’ confidence through improved quality of audit practices. SOX have made it possible for independent auditors to take part in corporate auditing. SOX has given corporate shareholders confidence in financial management of their investments. SOX have been integral in improvement of corporate governance. Investors from previous poorly performing companies are able to avoid fraud through SOX. It is rare for companies to issue financial restatements after complying with SOX provisions. SOX encourage standardization of audit practices through inspections made by Public Company Accounting Oversight Board (PCAOB).
International Financial Reporting Standards (IFRS) is beneficial from a comparability point of view. In this regard, companies are able to compare their financial management practices to those from other parts of the world. IFRS encourages cross-border investments and market integration. Eventually, the IFRS conversion provides companies with lower cost of capital. Companies complying with IFRS have a chance to experience market liquidity. On the other hand, IFRS is deemed as unreliable due to its high flexibility nature.
Lack of guidelines and rules can be detrimental to financial management and loss of investor confidence. Diversity in accounting standards does not amount to a single global standard. In this respect, IFRS does not conform to a global standard. Diversity in IFRS results to various interpretations of IFRS that hinders the creation of a global standard. The economic implication of switching to IFRS is that the conversion is costly in terms of resources and time. Switching to IFRS takes time to implement and is viewed as a long-term investment.
Switching to IFRS leads to reduced efforts in earnings management since financial managers and investors do not spend time trying to comply with national accounting regulations. The convenience and reliability of IFRS in reporting accurate financial statement information is evidence of the reducing earning management efforts. Moreover, investors are likely to anticipate financial statement from other sources and so save their time trying to get information from nationally-based accounts standards. In this regard, investors’ financial matters are serviced by better-informed accounting professionals. IFRS reduces the cost of processing financial statements, which is an indication that there are minimal efforts towards earning management. IFRS conversion is an accounting strategy to improve on efficiency and competitiveness in stock markets. Elimination of adjustments in financial statements during IFRS comparability is an indication that IFRS is improving on reducing information risk to investors. In this respect, investors and financial managers’ efforts, time and finances are reduced by adoption of IFRS.