The Sarbanes-Oxley Act - publié le 12/04/2008

Résumé du document

On July 30, 2002, President Bush signed into law a revolutionary Act: the Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act. In the wake of many financial scandals, this law establishes new accounting and control requirements on U.S. publicly owned companies. Administrated by the Securities and Exchange Commission, it aims at safeguarding against fraudulent accounting, protecting shareholders, and requires CEOs and CFOs to certify the accuracy and truthfulness of the accounts. Enron, WorldCom, Tyco International, Adelphia, and many others: all are known for highly-publicized frauds that resulted in $500 billion in the declines of share prices. In each of these scandals, the senior management did not behave ethically, which led to the misstatement of earnings and hit the confidence of investors.

Extraits

[...] The passage of the SOX engenders an increase in the liquidity of the markets and positive abnormal stock returns. Impetus of other countries: The other countries are stimulated to adopt a similar law: it is the Bill 198 in Canada, the J-SOX in Japan, the CLERP9 in Australia, the LSF in France, the L262/2005 in Italia or the King Report in South Africa. The non-US companies cross-listed in the US stock-exchange, which countries are developing and badly regulated, take advantage of better credit ratings and then lower opportunity costs. [...]

[...] The contents of the Sarbanes-Oxley Act Sarbanes-Oxley contains eleven titles that describe specific mandates and requirements for financial reporting. The Act covers issues such as auditor independence, corporate governance, internal control assessment and enhanced financial disclosure. Auditor independence and internal control: Title I - “Public Company Accounting Oversight Board The act establishes a new quasi-public agency which is charged with overseeing, regulating, inspecting, registering and disciplining accounting firms in their roles of auditors of public companies. This title also creates a central oversight board tasked with registering auditors and defining the specific processes and procedures for compliance audits. [...]

[...] Consequently, the better results a company has, the better it will be valued and perceived by specialists. The manipulation of banking and corporate practices: The banking practices, such as lending, normally give indications on the risk, health and integrity of a company. However, when the banks ignore the real financial indicators of a company, these practices can prove to be very bad and risky investments for both banks and investors. Then, regarding the opportunities of compensation (bonus, increase in stock values . top executives had all interest to have an efficient management of earnings. II. [...]

[...] The bureaucracy is criticized by Europe and Canada because of the decrease of stock price of companies, which countries are developed and well regulated. The voluntary delisting of foreign firms from the US stock exchange or the decrease of foreign inscription rate shows the competitive disadvantage and explains the transfer from New York to London. The debate between academicians continues because it is difficult to isolate the impact of SOX from other variables affecting the stock market and corporate earnings. This law, quickly established and carried out, has hidden costs which push to a reform, particularly for the section 404. References Pub.L. [...]

[...] publicly owned companies. Administrated by the Securities and Exchange Commission, it aims at safeguarding against fraudulent accounting, protecting shareholders, and requires CEOs and CFOs to certify the accuracy and truthfulness of the accounts. I. The origins and factors of the Sarbanes-Oxley Act A general context of failures Enron, WorldCom, Tyco International, Adelphia, and many others: all are known for highly-publicized frauds that resulted in $500 billion in the declines of share prices. In each of these scandals, the senior management did not behave ethically, which led to the misstatement of earnings and hit the confidence of investors. [...]