The enactment of the Sarbanes-Oxley Act requires all publicly traded companies to submit an annual report on the effectiveness of their internal controls, to increase their financial disclosures and to swear the disclosures are accurate to the best of their knowledge. Whilst the requirements of GAAP did not pose much trouble on account of chargebacks, with such issues being common enough industry practices, the enactment of SOX has compelled all affected companies to improve their accounting processes and internal controls significantly (Kohn and Others, 2004, 73).
Whilst it is practically impossible for companies to ensure such accounting sophistication with manual or semi-automated accounting processes, a number of sophisticated accounting systems are now available that can effectively take care of chargeback accounting complexities (Kohn and Others, 2004, 73). Managing chargebacks require attention to be paid to numerous potential integrating points, from pricing, billing, and cost accounting to management of supply chain and valuation of inventory.
Systems that allow integrating of accounting transactions and compliance allow for complete accounting and reflection of chargebacks (Kohn and Others, 2004, 73). Whilst such systems take time to implement and are expensive, they do lead to optimization of operations, improvement of internal controls, and proper representation of financial results and statements. 4. 0 Conclusions
The Sarbanes-Oxley (Sox) legislation came into being in 2002 after a number of frauds and accounting scandals by large and well known companies in the US, namely Enron, WorldCom, Global Crossing, and Tyco, resulting in losses of billions of dollars and thousands of jobs. Apart from these companies, the scandal also led to collapse and closure of the world’s biggest accounting firm, Arthur Anderson.
With the SOX aiming at improving corporate accountability and restoring investor confidence, its provisions targeted at improvement of internal control and increasing the accountability of CEOs and CFOs, mainly through provisions for severe criminal punishment for wrongdoers. Many observers, at the time of the enactment of the act, felt the provisions of Sox to be too harsh on company managements in terms of expense and effort. Among other things the enactment of Sox also required companies to completely overhaul their accounting procedures for recording of chargebacks.
It is interesting that an Act that requires accuracy in financial reporting can have so many potential side effects. In the case of chargebacks, the need to account for chargebacks accurately also led to many small distributing companies being benefited enormously because of proper chargeback payments from manufacturers. Whilst the enactment of Sox did lead to significant accounting problems at the time of its enactment, many experts now feel that it has helped in improving productivity and efficiency significantly in the long run.
“The Harvard Business Review strengthens the case for SOX-related benefits. Its April 2006 article ‘The Unexpected Benefits of Sarbanes-Oxley" states: "A number of companies have begun to standardize and consolidate key financial processes, eliminate redundant information systems and unify multiple platforms . . . automate manual processes . . . better integrate far-flung offices and acquisitions; bring new employees up to speed faster; broaden responsibility for controls; and eliminate unnecessary controls. ’”