Commercial Transactions and International Law

Commercial Transactions and International Law

Long after the establishment of the rule of law and the advent of the series of incidents that involves the conventional way of trading, the need to be able to standardize transactions in this information age has become a necessity that was way long overdure. Here in the United States, as with many parts of the world wherein the process of buying and selling has been a way of life, coupled with the widespread use of computers, the guidance of a uniform law is a need that government s should be able to provide, as soon as it is possible.

               The government’s attempt to standardize computer information transactions has been in a whirlwind situation being unable to distinctively decide what really is appropriate for the standardization of law. Several years before UCITA, the attempt was on a stand still contemplated on a barrage of proposals and revisions. In the case of the Uniform Commercial Code, this was revised twice and still was proven to be unable to protect the general will of both producers and consumers. Even UCITA, the standard that was approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) last July 29th after a long stalemate of 10 years still was met with the disgust of the majority of consumers.For instance, UCITA concentrates more on the lincensing of purchased goods whereas its sister law, the UCC was more towards the sales of goods. The distinction between the two practically lies onto the fact that as with the Article 2 of the UCC, the buyer’s definition to be as a person who transacts to buy a certain good (“Uniform Commercial Code – Index”, 2005). However, the argument is that the obligations therein of the buyer to the seller do not end with the acceptaance and payment of the goods (“UNIFORM COMMERCIAL CODE REVISED ARTICLE 2B. LICENSES”, 1996). In UCITA, afetr the product has been bought by the buyer, not only does that person buys the product but also the license that it includes. Only that the license included is only applicable for the particular buyer who transacted for the sale of the product.Compliance Requirements

            According to Section 404 of the Sarbanes-Oxley Act, companies are required to have a stable and efficient working framework of company accounting principles which are geared towards the integration of the company’s IT systems and accounting frameworks (United States. Congress. House. Committee on Financial Services.). Through the act, the presence of a company auditor which is legislated to be independent from the company board is also instructed to make a report on the company’s assessment of the effectiveness of the certain corporate entity to report financial assessments.  This gives a certain corporate entity in the United States to have financial entities that are able to independently monitor corporate operations through approved and SOX-compliant accounting practices.

            Furthermore, the American companies, both small and large ones are then compelled to exert efforts in the production of such reports. Failure to do so may entail to the non-compliance to the act and may imply corporate dishonesty thus leading to government sanctions.

Issues on the Provisions of Section 404

            The act was a promising solution to the emergence of rampant corporate dishonesty in the American corporate accounting procedures. However, there are also some provisions that are not considerate in terms of the scope of implementations. For instance, the act protects the welfare of the investors but does not protect small corporate players who may not be able to fully comply to the act.

            The act discreetly implies that in order to be SOX compliant, and as stated particularly in Section 404, the corporate entity has to have an IT system like COBIT that would help the United States Government to effectively monitor accounting procedures (Lahti and Peterson). This particular IT system is really expensive to develop, acquire, and maintain. A small business entity may not be able to effectively afford and adapt to such system that is SOX-compliant. Even if the company is able to do so, it could spell disaster or corporate suicide in bold letters.

            Additionally, section 404 of the same act also requires the presence of independent auditors who will then have the task of producing the company financial reports using accounting procedures that are SOX compliant (Miller). A large American company would have no difficulty in adjusting to such provision. However, a small company then again may not be able to afford having an independent auditor for this entails additional operating costs as well as additional internal costs in the form of professional auditing fees. The emergence of the Third-party fees is not included in such costs and in general, such additional costs would affect small business proxy materials significantly and in the long run decrease profitability.

            On the other hand, the increase of efficiency rates in the long run remains a promising compensation to rising costs of adaptation to the act. Upon implementation of the provisions of the SOX Section 404, the company would then be able to gain increased efficiency rates as an effect of the learning curve principle in terms of controlling as well as implementation issues that are geared towards the creation of better corporate practices. The main argument however remains that even before small businesses are able to meet such efficiency rates and become SOX-compliant, would they still be afloat? The answer still is uncertain.

References:

Lahti, Christian, and Roderick Peterson. Sarbanes-Oxley : It Compliance Using Cobit and Open Source Tools. Rockland, MA: Syngress Pub. Inc., 2005.

Miller, Dale. Impact of the Sarbanes-Oxley Act of 2002 from an Information Technology Perspective. 2004.

Uniform Commercial Code – Index. (2005). Retrieved June 23, 2007, from http://www.law.cornell.edu/ucc/index.htm

UNIFORM COMMERCIAL CODE REVISED ARTICLE 2B. LICENSES (1996).   Retrieved June 23, 2007, from http://www.law.upenn.edu/library/ulc/ucc2/ucc2b296.htm

United States. Congress. House. Committee on Financial Services. The Impact of the Sarbanes-Oxley Act : Hearing before the Committee on Financial Services, U.S. House of Representatives, One Hundred Ninth Congress, First Session, April 21, 2005. Washington: U.S. G.P.O. : For sale by the Supt. of Docs., U.S. G.P.O., 2005.

United States. Congress. Senate. Committee on Banking Housing and Urban Affairs. Implementation of the Sarbanes-Oxley Act of 2002 : Hearings before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Eighth Congress, First Session, on the Dramatic Change across the Corporate Landscape to Re-Establish Investor Confidence in the Integrity of Corporate Disclosures and Financial Reporting, September 9, 23, and October 2, 2003. Washington: U.S. G.P.O. : For sale by the Supt. of Docs., U.S. G.P.O., 2005.

What is UCITA? (2006). Retrieved June 23, 2007, from http://www.ucita.com/what_problems.html

Welytok, Jill Gilbert. Sarbanes-Oxley for Dummies. Hoboken, NJ: Wiley, 2006.