Essential Components Of Government Regulation Research Paper Examples
Enter Name of Student
Enter Name of University
What is Government Regulation?
“Government regulation consist of encompassing state policy making and administration, all regulatory and deregulatory activity, whether by the state or by some other institution. This typically focuses on government action affecting private business by policing market entry, exit, rate, profit structures, and competitive environments. Government regulation then becomes virtually coterminous with all government policy making or administration, whether by legislatures, administrative agencies, courts, etc. It revolves around capital accumulation and state action, including macroeconomic, social, and labor-market policies, but also involves systems of interest intermediation in the workplace, economic rule making by banks, nongovernmental institutions, and cultural schemata followed and taught in families and schools”("Government Regulation," 2014, para. 3).
“During the past decade, there has been a significant intensity in the area of accounting” (Defond & Francis, 2000). However, “the industry is being forced to redefine itself, but not just to satisfy the new federal regulations. Previous accounting scandals such as, Enron, WorldCom, etc; has created a new realization of the critical role accounting practitioners play in business decisions. New security regulations now reach directly into boardrooms, dictating certain requirements about how companies operate a place where no one thought securities law could go. While this may make some account executives anxious, it reveals an incredible opportunity for the accounting profession to carve out a new identity. Accounting has now become a basis for corporate behavior, decision-making, and ethics. Not to mention, the skills demanded of accountants are much broader as an end result” (The Accounting Industry, 2014).
“Eight out of ten Americans believe that their country is headed in the wrong direction. It was once believed that the open markets and deregulation would solve its problems. The American people credit is becoming scarce, recession, and inflation both threaten the economy. Between 2002 and 2006, the incomes corporate America rose by 99% of an average of 1% a year in real terms, while those of the top 1% rose by 11% a year; three-quarters of the economic gains” ("The Economist," 2008). Not to mention, “The result of an economy in which extracting value have come to dominate the forces for creating value. The most visible venue for value extraction is the gambling casino known as Wall Street. With industrial innovation, there comes of higher quality lower cost products that provide the foundation for economic growth. Throughout its existence, the US has been an innovative nation, and today still hosts many of the world's leading industrial corporations as well as the most advanced institutional set-up for new firm formation in high-tech fields. To receive innovation, however, there must be government funding of the knowledge base. The US government commits massive expenditures on new military technologies” (Lazonick, 2011). The government is usually lobbied to spend more on other information technologies and other sectors. But in corporate America, this usually means that the taxpayers have to foot the bill.
More or Less Regulation
“The financial crisis of 2008 has ensured a federal aggressive program to make sure banks are well prepared for various risks. Even if that means banks have to trim the dividends they pay to their shareholders. The catch is that one bank estimates the cost of compliance at over $50 million for one year. It takes a large bank to be able to afford that kind of payment. This is how these sorts of regulations work. They are often adopted in a punitive spirit by politicians or bureaucrats who think banks have been making too much money, getting away with murder, etc. And so the regulations are adopted with a main goal to limit the power of these big firms” ("The American Interest," 2015, para. 4). “Yet, one of America’s greatest is supposed to be the home of the great laissez-faire. Unlike the Europeans, whose lives have long been controlled and circumscribed by overly involved government officials, Americans are supposed to be free to choose and do whatever they may so please as long as it is law abiding. There should be less regulation since companies are having difficulty following them due to the lengthy details. Take for instance, the Dodd-Frank law of 2010. Its purpose was righteous, and that was to prevent another financial crisis. It consisted of improving transparency, stopping financial firms from taking anymore unnecessary risks, preventing abusive or dangerous financial activities and end the attitude of being “too big and powerful to fall” by allowing regulators to seize any big financial firms. But the Dodd-Frank law is much too complicated. It has 848 pages, and longer than the similar law of Glass-Steagall, which was the financial reform that followed the Wall Street crash of 1929 in which millions of people lost their investments and retirement savings” ("The Economist," 2012).
The Securities Acts of 1933 and 1934
“The Securities and Exchange Commission was created in 1934 to regulate and control the commerce in stocks, bonds, and other securities” (Hanna, 2004).
The issuing and trading of these securities were at times nonexistent, which allowed for any number of frauds that are commonly seen in today’s society. In addition, the unreported concentration of controlling stock interests in the wrong hands and poor management led to the abuses of power that the free exchange of stock were mandated to eradicate. To handle this issue more effectively, Congress had created three acts of the Securities and Exchange Commission, SEC, and defined its responsibilities more thoroughly. The Securities Act of 1933 mandated public corporations to register their stock sales and distribution with continuous and updated financial disclosures. The Securities Exchange Act of 1934 helps to regulate exchanges, brokers, and over-the-counter markets” ("Securities and Exchange," 2015). Foreign Corrupt Practices Act of 1977
“The Foreign Corrupt Practices Act (FCPA), which was created in 1977 prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business” (Duncan, 2012).
“This could apply to prohibited conduct anywhere in the world and extends to publicly traded companies and whoever works for the company. Agents can include third party agents, consultants, etc. It requires issuers to maintain accurate books, records and have a system of internal controls sufficient to provide reasonable assurance that transactions are executed; assets are accessed, and accounted for” ("United States Securities and Exchange Commission," 2014).
The Sarbanes -Oxley Act
“The Sarbanes-Oxley Act of 2002 is a specific legislation which was passed by the U.S. Congress to protect a company shareholders and the general public from enduring any accounting errors and fraudulent practices, as well as improve the accuracy of corporate disclosures”(Dowling, 2008). “The Sarbanes-Oxley Act was enacted due to a series of high-profile financial scandals. The act, which was drafted by U.S. Congressmen Paul Sarbanes and Michael Oxley, was aimed at improving corporate governance and accountability. Now, all public companies must comply with this regulation. The Sarbanes-Oxley Act not only affects the financial side of corporations, but also IT departments charged with storing a corporation's electronic records. The act is not a set of business practices and does not specify how a business should store their records rather, it defines which records should be stored and for how long. The consequences for noncompliance are fines, imprisonment, or both” (Rouse, 2014).
Scandals and Regulations
For this section of the discussion, the three scandals in particular which will be discussed and how it relates to the previous regulations are Enron, Wal-Mart De Mexico, and Madoff. First, the Enron scandal allowed members of congress to see that “new compliance standards for public accounting and auditing had to be put into place. Enron was one of the biggest and, believed to be one of the most financially sound companies in the U.S. Enron was perhaps the catalyst for the Sarbanes-Oxley legislation. Enron, located in Houston, TX, was considered one of a new breed of American companies. It bought gas and oil futures. It built oil refineries and power plants. It became one of the world's largest pulp and paper, gas, electricity, and communications companies before it bankrupted in 2001. Enron officials embezzled money from the firm while reporting fraudulent earnings to investors. Eventually, the company went bankrupt because of fraudulent earnings reports and embezzlement” (Peavler, 2013). The scandal was indeed due to an inadequacy in the legislation since it will protect investors from losing their money in the event this was to happen again. The second scandal, in regards to Wal-Mart consisted of “envelopes were stuffed with cash being handed to mayors, and other government officials who held the power to stand in the way of business. The alleged bribes, which amounted to more than $24 million to members of the Mexican government, had violated the Foreign Corrupt Practices Act. Three days after being featured in The New York Times, Wal-Mart issued a statement outlining steps it has taken to bolster its global compliance program. It created a new global FCPA compliance officer position, which is in charge of the company's FCPA compliance worldwide. At Wal-Mart de Mexico, the retail giant said, strengthened compliance measures include policies, procedures, internal controls, training, auditing procedures and escalation and remediation protocols” ("SearchCompliance," 2010). The final scandal, Madoff which was bigger than the previous mentioned two are all examples of inadequacies in regulation. “Bernard Madoff, founder and president of Bernard Madoff Investment Securities, a market maker for hedge funds and banks, was charged in a $50 billion fraud at his advisory business. Madoff himself had mentioned that he firm was nothing but a “ponzi scheme”. The Securities and Exchange Commission had sued him to obtain emergency relief for investors, including an asset freeze” (Panzner, 2008).
Throughout the research, it was previously stated that there should be less regulation, but it has been decided that whether if the legislation is there or not, these corporate individuals will break the law since they may feel that these laws may not apply to them. Or, in some cases, these individuals may feel that they could get away with it altogether, so why not commit the act? “Recent corporate scandals have led to public pressure to reform business practices and increase regulation. Of course, dishonesty, greed, and cover-ups are not new societal concerns. The public outcry over the recent scandals has made it clear that the status quo is no longer acceptable: the public is demanding accountability and responsibility in corporate behavior. It is widely believed that it will take more than just leadership by the corporate sector to restore public confidence in our capital markets and ensure their ongoing vitality. It will also take effective government action, in the form of reformed regulatory systems, improved auditing, and stepped up law enforcement” (Healey, 2013).
50 Shades of Regulatory Grey. (2015). Retrieved from http://www.the-american-interest.com/2015/02/23/50-shades-of-regulatory-grey/
Defond, M., & Francis, J. R. (2000). Auditor Industry Specialization and Market Segmentation: Evidence from Hong Kong. AUDITING: A Journal of Practice & Theory, 19(1), 49-66.
Dowling, W. A. (2008). The Impact Of Sarbanes-Oxley Act. Journal of Business & Economics Research, 6.
FAQ: Wal-Mart de Mexico scandal and how it triggered FCPA violations. (2010). TechTarget. Retrieved from http://searchcompliance.techtarget.com/guides/FAQ-Wal-Mart-de-Mexico-scandal-and-how-it-triggered-FCPA-violations
Hanna, J. (2004). The Securities Exchange Act of 1934. California Law Review, 23(1).
Healey, T. J. (2013). The Role of Government in Corporate Governance. Harvard University, 23.
Industry Overview: Accounting. (2014). Retrieved from WetFeet: http://www.wetfeet.com/articles/industry-overview-accounting
Lazonick, W. (2011). How Greedy Corporations Are Destroying America’s Status as Innovation Nation. Retrieved from http://www.nextnewdeal.net/how-greedy-corporations-are-destroying-americas-status-innovation-nation
Over Regulated America. (2012). Retrieved from http://www.economist.com/node/21547789
Panzner, M. (2008). Madoff Scandal. Retrieved from http://seekingalpha.com/article/110402-madoff-scandal-biggest-story-of-the-year
Peavler, R. (2013). The Sarbanes-Oxley Act and the Enron Scandal - Why are they Important? Retrieved from http://bizfinance.about.com/od/smallbusinessfinancefaqs/a/sarbanes-oxley-act-and-enron-scandal.htm
Rouse, M. (2014). Sarbanes-Oxley Act (SOX). Retrieved from http://searchcio.techtarget.com/definition/Sarbanes-Oxley-Act
Search for a Practical Standard. Northwestern Journal of International Law & Business, 4(1).
Securities and Exchange Commission. (2015). Retrieved from http://www.history.com/topics/securities-and-exchange-commission
Spotlight on Foreign Corrupt Practices Act. (2014). Retrieved from https://www.sec.gov/spotlight/fcpa.shtml
Unhappy America. (2008, July 24). Economist. Retrieved from http://www.economist.com/node/11791539
WHAT IS GOVERNMENT REGULATION? (2014). Retrieved from http://what-when-how.com/sociology/government-regulation/