Sox Pros and Cons
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After the events occurred in the US market (Collapse and bankruptcy of Enron and WorldCom, among others), the effect of which are still being felt in US economy. It seemed evident that the information regarding financial statements are ever more important for investors and regulatory agencies.
In response to this mayor corporate and accounting scandals, and as an attempt to restore confidence in the market, in July of 2002, US congress and President Bush signed into law the Sarbanes-Oxley Act. This Act, requires executives, boards of directors and auditors to take precise measures to bring about greater corporate accountability and transparency.
The following tables will illustrate the costs and benefits of the Sarbanes-Oxley Act on: Investors, Companies (especially CEOs and senior managers), Accounting (CPA) firms, and Government.
Please refer to tables 1 and 2 in the following pages. References are posted at the end of the document
TABLE 1 – COSTS AND BENEFITS FOR EACH ACTOR
COSTS
BENEFITS
Investors
Initial Costs incurred by companies for the compliance of the regulations will go to the investors [Ref 9]
More efficient transmission, dissemination, analysis, storage and retrieval of insider ownership and transaction information [Ref. 1]
More time will be required to go through all the information that will be disclose by companies [Ref 9]
Improve quality and transparency in financial reporting [Ref. 1]
CEO/CFO Certifications. rules requiring principal executive and financial officers of every public company to certify to the financial and other information contained in the companys quarterly and annual reports [Ref. 3]
Increased disclosure regarding all financial statements [Ref. 4]
Companies, especially CEOs and senior managers
increase corporate responsibility [Ref. 1]
Improve quality and transparency in financial reporting [Ref. 1]
certification of internal auditing by external auditors [Ref. 4]
Extended Notification Period for Discretionary Transactions and transactions pursuant to a contract, instruction, or written plan for the purchase or sale of the companys equity securities. [Ref. 2]
Costs incurred due to Shortened Reporting Deadlines. This may include:Pre-clearance,Preparation and Review,Designating a broker to handle all insider market transactions,Obtaining powers of attorney from all insiders permitting the company. [Ref. 2]
Enhance investor confidence [Ref. 7]
CEO/CFO Certifications. rules requiring principal executive and financial officers of every public company to certify to the financial and other information contained in the companys quarterly and annual reports [Ref. 3]
identification of internal control deficiencies and implementation of new key controls [Ref 8]
Criminal and civil penalties for noncompliance violations [Ref. 4]
Enhanced individual companies business processes, including simplification and standardization of previously redundant controls. [Ref. 8]
CEO and CFO are responsible for the internal accounting controls [Ref. 5]
Enhanced managements and employees appreciation, understanding, and accountability for internal controls. [Ref 8]
Significant investment in time and resources to train employees on the new requirements [Ref. 8]
Increased disclosure regarding all financial statements [Ref. 4]
Accounting (CPA) firms
Strengthen the independence of firms that audit public companies [Ref. 1]
more efficient transmission, dissemination, analysis, storage and retrieval of insider ownership and transaction information [Ref. 1]
Strengthen control over audited companies [Ref 6]
Increased power to check companies books [Ref. 5]
Government
Strengthen the independence of firms that audit public companies [Ref. 1]
Facilitate compliance with the will of Congress [Ref. 1]
Increased power to check companies books [Ref. 5]
Selected Characteristic
Investors
Companies, especially CEOs and senior managers
Accounting (CPA) firms
Government
CEO and CFO are responsible for the internal accounting controls [Ref. 5]
CEO/CFO Certifications. rules requiring principal executive and financial officers of every public company to certify to the financial and other information contained in the companys quarterly and annual reports [Ref. 3]
certification of internal auditing by external auditors [Ref. 4]
Costs incurred due to Shortened Reporting Deadlines. This may include:Pre-clearance,Preparation and Review,Designating a broker to handle all insider market transactions,Obtaining powers of attorney from all insiders permitting the company. [Ref. 2]
criminal and civil penalties for noncompliance violations [Ref. 4]
enhance investor confidence [Ref. 7]