Sarbanes-Oxley Act Case Study

Have you ever invested your hard-earned money into the stock market? If so, you know the risks involved when investing money into a publically traded company. For thousands of people whom had money tied up in stocks with companies such as; Enron, WorldCom, and Health South, their investments were doing great for a very long time. But as time went on, the good times quickly ended. It was discovered that over the past several years the accountants and CEOs of these corporate giants were “cooking the books,” the act of fooling the market into believing profits are higher than they actually are. The unlucky individuals who had believed their money was invested in high earning companies were hoodwinked, and their money was lost forever
According to Soxlaw.com, a website devoted strictly to Sarbanes-Oxley, Section 404 of the Act states, “issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting.” Section 404 also requires that an external accounting firm be brought in to determine the effectiveness of the report and all internal controls. To not violate any parts of Section 404 companies are spending and astronomical amount of money every period for which reports are submitted. As Amy Feldman stated in her article recapping the effects of the Act, “by spurring companies to clean up their acts—the fact remains that the law has created inequities, especially for small companies.” She continues by adding that the Bill has adversely impacted long prospering corporations like Home Federal Bank, started in 1929. Curt Hage, Chief-Executive of Home Federal’s parent bank, specifically comments that it is nearly impossible to meet the terms of Section 404 for small and mid-cap companies (Qtd. in Feldman). John Montana states in his article proponents of the Bill argue that it was passed in 2002, but it was not completely implemented until two years later; therefore, we must wait and see what long-term impact the
stock exchanges. Companies delist from stock exchanges in order to get better deals from exchanges in other countries or to avoid laws the of the country that the exchange is currently in. In the case of companies listed in America, they must follow SOX. Many companies have delisted and moved to other stock markets in order the avoid complying with the Act. According to an article from the General Counsel website, 370 companies delisted within the first two years that Sarbanes-Oxley was implemented (Wong). The threat of more companies delisting to avoid the complexity and costs of SOX does not bode well for the U.S. economy. Companies listed in American stock exchanges, such as the New York Stock Exchange (NYSE), provide the economy with much-needed jobs and money. In a survey taken by Russell Reynolds Associates, a global executive search and assessment firm, 58 percent of companies listed in the U.S. would consider delisting because of “SOX’s steep costs and troublesome bureaucracy.” In addition, 70 percent of European companies surveyed would not desire to be listed in the U.S. because of the overbearing regulations in the American stock markets (Wong). The loss of these listings in the U.S. stock market is having a detrimental effect on the American economy. The SEC is working to fix the problem, but for now all they can do is try to “excuse smaller companies