Wednesday, February 09, 2005

Sarbanes Oxley- SOX It To Them

This week's Financial Engineering Today newsletter has a great review and update on the Sarbanes-Oxley Corporate Responsibilty Act.
Sarbanes-Oxley- SOX It To Them

A few highlights:
  • **"The stated objective of the act was “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.” In plain English, the point of the law is to make companies more transparent and executives more accountable"
  • **"The reaction of most chief executives, at least in private, was that the act was a knee-jerk reaction to the scandals, that the act was hastily drawn up without sufficient thought, that compliance to the requirements would be daunting "
  • **"Despite these and other drawbacks, with compliance around the corner the sky has not fallen. While admittedly expensive to implement, examination of some of the claims CEOs have made about the cost of compliance leaves one scratching his head. One publicly traded company with $300,000 in earnings estimated that it would cost $250,000 "
  • **There have been other "benefits" as well. For instance "Smart companies have used compliance as an opportunity to get a standardized financial reporting system in place across a company’s business units." While true to a degree, I have reservations with this since if there were these great benefits, firms would rationally adopt them with or without the law. (or at least in theory they would)
  • **and finally, if transparency increases, so too should firm value.

The article is by Paul Schaafsma. Definitely worth your time!

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