In 2002 Congress passed the Sarbanes Oxley Act in response to an irate public bilked by the Enron, WorldCom and Tyco accounting scandals. It is hard to determine if SOX has been a success, mainly because its benefits are hard to quantify. There certainly have been scandals and failures, but no book-cooking failures on the scale we saw 11 years ago. Proponents of Sarbanes-Oxley point to the creation of the Public Company Accounting Oversight Board (PCAOB), the requirement that CEO’s and CFO’s certify their company’s financial statement, and giving board of directors more powers in terms of overseeing financial audit functions as all benefits to the public.
Detractors find fault with the great expense associated with compliance with the internal control mandates of Section 404, greatly increased audit costs, and claim that SOX discourages IPOs, especially of smaller companies. In the wake of the Facebook IPO debacle, one could argue that a chilling effect on IPOs might not be a bad thing.
All in all, most lawyers and analysts say that Sarbanes-Oxley is working. It has made public-company financial reporting more reliable and instilled tougher internal controls and higher standards on accountants. It is also hard to say if SOX or a protracted down economy is really to blame for fewer IPOs. If you would like more information on this subject, contact Scarlette Tuley, a lawyer in our firm who handles securities litigation, at 800-898-2034 or by email at Scarlette.Tuley@beasleyallen.com.
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