At the end of the year 2001, and during the year 2002, many financial scandals broke out and shook the confidence that had been placed in our global economy and the reliability of companies listed on the Stock Exchange such as Enron, WorldCom, Tyco, Qwest, and Xerox. These scandals are not just the results of suspicious dealings of only a handful of people. They also disrupted the working of the whole system of listed companies, in a very liberal environment. Various malpractices were uncovered like the interference between audit and consultant companies, and the use of the technique of external growth to hide huge deficits. Such practices gave rise to abuse, especially from top managers and executives; this is why we can see now a reappraisal of self-regulation by companies and corporate governance. After such scandals, the US government decided to intervene. Confidence is a vital element in a market economy and this was put at risk. M. Oxley, a Democrat congressman, and P. Sarbanes, a Republican congressman wrote a law in order to modify deeply, the rules of US corporate governance. The Sarbanes Oxley Act (SOX) was voted unanimously and promulgated on 30th July 2002. Through this law, the US government established tougher controls and regulations for listed companies.
[...] With an aim of guaranteeing better financial information, the Sarbanes - Oxley Act brings requirements as for the contents of these reports. It's very important to provide investors with complete and up to date financial information. It is thus necessary to make appear all significant countable adjustments in order to give a faithful image of the company. Back to Enron time, irregular activities have been hidden in quarterly reports, and made it possible to hide deficits. But now, new kinds of reports appear and avoid that kind of irregularity. [...]
[...] The Sarbanes-Oxley Act introduces a little order in accountancy and corporate governance, but it remains the issue of self-regulation of markets. And as Paul Volcker 19 recently noticed, there has been a great failure for the last twenty years in terms of self-regulation. The second problem is about bringing reforms into play, especially with the role of the SEC. Its budget remains limited and the commission remains the target of several criticisms. They have often been accused of a lax attitude with financial scandals In Defense of Sarbanes-Oxley by Paul Volcker, Arthur Levitt. [...]
[...] was the beginning of a new direction in the way major companies are run? 1 M. Aglietta et A. Rebérioux, Dérives du capitalisme financier, Ed. Albin Michel Economie p.330 The main purpose of the US government by passing the Sarbanes Oxley Act was to increase corporate responsibility and protect investors, in order to restore their confidence in the market. The three main principles are accuracy and accessibility of information, the responsibility of managers and the independence of auditors. We can distinguish six main measures The most important one is about the responsibility of CEO and CFO. [...]
[...] However, they were not a lot of managers and top executives who complained about SOX at the very beginning Who knows, they could have been considered like “fraud-friendly” within the American economy that was a bit paranoid at that time. These reforms raise only few divergences as for the objectives. Everyone agrees to think that the financings would be less expensive with harmonized financial services. Everyone also hopes, and that this could be only beneficial for investment and consumption. Everyone also agrees to improve transparency and making mechanisms more efficient. [...]
[...] The reason seems quite simple: their investors claimed for more transparency (banks, shareholders etc), and this kind of company was often linked to listed companies that want to be sure their partners are fraud-free Everyone agrees on the fact that confidence in big companies got better just after the promulgation of this law Title IX : White Collar Crime Penalty Enhancement, Section 1103, Sarbanes Oxley Act of 2002 Title VIII : Corporate and Criminal Fraud Accountability Act of http://www.ge.com/en/citizenship/governance/founding_father.htm 11 Sarbanes-Oxley compliance: benefits for the private firm Real Estate Weekly, March by Hunt C. [...]
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