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With Enron and WorldCom collapsed under the weight of questionable accounting practices, shareholders, investors and employees spent many sleepless night wondering if their money ever again. It is these shareholders, investors and employees, that the legislature with the search protected if they are covered by the Sarbanes-Oxley Act in 2002.
In the aftermath of accounting scandals, Sarbanes-Oxley or Sarbox as it is called, seemed like a good idea. Tighten accounting standards and rules for reporting and improving corporate governance and control to the shareholders and investors regained confidence in the publicly traded companies.
But how many of the ideas, from Washington, they also had unanticipated costs and consequences, and the result is that many companies very quickly to implement the new accounting reforms are now discovering that the respect comes with a mighty high price. Companies is difficult, a company wide changes that are consistent with the incriminating surveillance and reporting. Often organizations have been distracted by the compliance and not to recognize the other benefits of the post-Enron world.
So comfortable with Sarbox firmly in our corporate culture consciousness, where are we today and what have we learned?
Compliance with Sarbanes-Oxley Act is much more complicated and more expensive than you ever expected. According to AMR Research, U.S. companies were to spend $ 6.1 billion in 2005 to deal with Sarbanes-Oxley. In addition, the Securities and Exchange Commission estimates that companies spend 5.4 million jointly worked per year for the implementation of Section 404 - the part of the Act stipulates that the financial reporting. As you can imagine, senior-level executives in publicly-held companies are not satisfied with these results.
In a May 2005 Deloitte & Touche "Section 404 CFO Roundtable," 83 percent of the Chief Financial Officers respondents believed that the cost of Sarbox compliance far any benefits to their organizations. The CFO is also concerned that the compliance costs were a direct and immediate negative impact on their bottom line and shareholder value, whereas the benefits of the Sarbanes-Oxley compliance is not to be seen for the coming years. If ever.
Furthermore, promises of vague, intangible benefits such as future "renewed investor confidence and improve operational efficiency" is not well with "bottom-line-oriented CEO's and CFO's whose performance is measured by the shareholders and investors on a quarter-by -- quarterly basis.
And it is not just CEO's and CFO's of publicly traded companies that are nervous. Privately held companies and non-profit held to the same strict accounting rules than large, publicly-held companies.
Banks, investors and insurance companies are now the fact that smaller, privately held companies in the same institutional rules and financial reporting requirements as larger publicly held companies. Large, publicly traded companies have also indicated that their business partners, both public and private, with Sarbox provisions as a condition for doing business.
With their backs pressed to the wall, private companies are under. In a 2004 survey from Baruch College in New York and the Financial Executives International, 60 percent of companies with a turnover of less than $ 25 million below, or plan to work with some provisions of Sarbox.
So it seems that whether you're a large publicly held multi-national conglomerate or a small privately held companies hometown, Sarbanes-Oxley Act is the new standard with which you are measured and held accountable.
But the cost of compliance with Sarbanes-Oxley is too steep for many businesses to bear? That remains to be seen. But what is known that in the first year was a toll on the bottom-line results from many companies, both large and small, with little or nothing to show is.
If this trend continues, if the costs continue to rise, and stiff penalties for violations are aggressively enforced, accounting and legal fees will continue to rise, while dilution Bottom-line profits. The result? Both investors and shareholder value will continue to fall.
A law on the protection of shareholders and investors lose their money may be exactly the opposite effect. Unfortunately, this could mean a lot more sleepless nights, both for shareholders and senior-level executives.
Richard A. Hall is founder and president / CEO of LexTech, Inc., a legal information consulting company. Mr. Hall has a unique breadth of experience that enabled him to meld technology and sophisticated statistical analysis, a technology driven analytical model of the practice of law. As the process employed civilian lawyer, he was responsible for designing and implementing a LAN-based process database and fully automated document production for a medium-sized enterprises civil. He developed a task billing model based on extensive statistical analysis of hundreds of litigated civil matters. In 1994, Mr. Hall invented linguistic modeling software which automatically reads, applies budget codes, budget codes and analyzes legal bill content. He also served as California Director and lecturer for a nationwide bar review. Mr. Hall continues to practice law and perform pro bono services for several Northern California judicial districts.
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