Even though the differences may not be clear a key differences arises in the aspect of stakeholders. The investors will always want to be informed on how their investments are fairing on. In a private company, systems may be developed where the investors who are often few and closely related can access financial records and the performance of their investments at particular times (Einhorn 23). Furthermore, the private nature of such businesses exempt them from mandatory disclosure and there are no restriction on the materials they can disclose. However, the story is quite different in public companies where disclosure is a must.
Public companies are of national interest and therefore issues regarding their financial status affect a considerable proportion of the general public (Lewis & Pendrill 32). Development in financial systems are aimed at protecting the investors from the failure of such financial institutions. The law therefore dictates that such companies must disclose their financial records and in so doing the materials disclosed should be such that they provide enough information as per the investors' requirements (United Nations Conference on Trade and Development 35).
Therefore, while a private company financial records may only be a page the public companies often develop booklets and mountains of documents as their financial records. In general, preparation of financial records in public companies is more resource intensive relative to private company due to the time and financial resources that have to be channeled to the preparation of the rather comprehensive records. The similarities are countless. The principles employed, assumptions made and constraints are generally within the GAAP principles (Haber 24).
The principles are within the stated framework and therefore bears a lot of similarities. Disclosure is stressed on by both private and public companies for the sake of their investors. In either case, the importance of financial reports to the management of the companies and to creditors who may require the company's financial information is of equal importance. The area of financial disclosure and development of financial reports is of key concern to the entire economy.
The government and the legislative system is often concerned with the overall wellbeing of the people; at least that is what they have made people believe. Disclosure and financial reporting is an area that is of key importance to the overall development of not only the company whose records and transactions are being disclosed but also to other companies that may be related to the said company in one way or the other. The federal system broke its liberalization of the accounting systems when in 2002 it enacted the Sarbanes-Oxley Act (Hamilton & Trautmann 44 ).
The act was aimed at protecting the investors and was enacted into federal law in 2002. Previously issues regarding financial disclosure and preparation of financial records were governed by standards rather than law. The move was aimed at dealing with the increase in the levels scandals that hit a number of major corporations namely Tyco and Worldcom among others (Shanley 21). These scandals were very costly on investors and had a major bearing in the capital markets as share prices dropped considerably.
The effects of the scandals were felt by both participants and non-participants as the confidence in the stock markets suffered and irrecoverable blow. The reforms that were brought by this act are considered the most far reaching changes in the business environment in decades. These new legislations did not affect the private sector and were aimed at developing enhanced standards for the public sector players including public accounting firms (Shanley 49). Its adoption was a controversial step and led to major divisions on its perceived benefits.
A number of people who were and still are for its implementation state that it has led to an increase in investor confidence on the stock market while ensuring better standards and controls for corporate accounting standards. The act led to the developments and enaction of PCAOB which is charged with regulating, inspecting and ensuring relevant disciplinary measures are taken against accounting firms that are ascertained to have flawed some of the principles and standards set by the Sarbanes-Oxley Act (Pratt & Niculita 85 ).
Some of the key features of Sarbanes-Oxley Act of 2002 include: The first title establishes the PCAOB as a board that will provide the required oversight for accounting firms that provide audit services. This first title also creates a central board that is tasked with ensuring procedure compliance by the boards, registration of auditors, definition of processes and procedures for compliance, quality control and management and enforcing compliance as per its mandate that are provided for in the act (Einhorn 19).