Sarbanes-Oxley Act Of 2002 - SOX
Categories: Regulations, Investing
It was a moment in time when it seemed that nearly every major company was riddled with lies, deceit, and chicanery. Fake accounting. Off balance sheet tricks. Outright fraud. Worldcom. Enron. Cendant. Lucy’s Psychiatry Stand. In 2002, it was as if every morning greeted WSJ readers with a new onslaught of how America was really a corrupt, angry, tricky-dicky society of financial bedwetters. And in fact, it turns out that...there were a few really bad wetters.
But, as usually happens over time, karma spoke, and the bad actors were jailed and found and stamped out like mice who accidentally wandered into an elephant sanctuary. And in the ashes of all of those badlands discoveries came a new set of laws revolving around how proper accounting and disclosure should work. And the leader of that pack was SOX, or Sarbanes-Oxley Act, which stipulated a whole raft of procedures that companies had to follow when filing public accounting documents.
The lion’s share of those documents comprised the 10K annual and the 10Q quarterlies, which went from being 20 pages long to something like triple that amount. It was the greatest boon for CPAs everywhere, as the need for real auditors nearly doubled overnight. Tons of little things had to be checked and confirmed by outside parties. The CEO’s trip to Hawaii. Was that really a necessary business trip? Did he really need to take his mistress with him, to take, um…dictation? The $400 for surfing lessons...a biz expense? Well, if he was the CEO of Oakley sunglasses, maybe you could make that argument. But as head of AC Delco windshield wipers, not so much.
In fact, SOX found enormous volumes of little fraud rampant across many filings, and in an amazingly short period of a few years, most of those smaller, fraudulent corporate leakages were cleaned up with haste, and to the disappointment of ambulance-chasing lawyers who were used to getting rich off of suing companies for fraud.
The downside of SOX was that it was blanket form. Meaning that it treated General Electric the same way it treated Etsy. Tiny companies doing only tens of millions in revenue were required to make the same detailed filings as behemoth companies doing deci-billions in revenues. The behemoths could amortize the $50M in audit expense across an enormous base. The tiny companies could not, so SOX compliance costs became a meaningful expense to small companies that had precious few resources to apply to growth.
So subsequent to Sarbanes-Oxley, a number of amendments were made that allowed for small companies to “file light.” Basically, the level of detail required in cross-checking was minimized, and a kind of tiered structure began to be applied to companies of different scale and scope, such that the increased government scrutiny on accounting practices, and legalities of transactions, were not, in fact, heavy friction to the normal, highly competitive business practices living out there on the horizon.
Sarbanes-Oxley exists today in all its living glory, producing second and third homes for partners in large accounting firms everywhere. Giving them plenty of places to, uh…wet the bed.
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Finance: What is Sarbanes Oxley?1 Views
Finance Allah Shmoop What is Sarbanes Oxley socks Well It
was a moment in time when it seemed that nearly
every major company was riddled with lies Deceit and chicken
hree fake accounting off balance sheet tricks outright fraud There
was WorldCom and in Iran and Cendant and Lucy's psychiatry
stand All right In two thousand two It was as
if every morning greeted Wall Street Journal readers with a
new onslaught of how America was really a corrupt angry
tricky Dicky society of financial bed Weathers And in fact
it turns out well yes there were a few really
bad weather's but his things usually do overtime Karma spoken
The bad actors were jailed and found and stamped out
like mice who accidentally wandered into an elephant sanctuary happens
And in the ashes of all of those bad land
discoveries came a new set of laws revolving around how
proper accounting in disclosure should work And the leader of
that pack was socks or Sarbanes Oxley The act which
stipulated ah whole raft of procedures that companies had to
follow in filing public accounting documents The lion share of
those docks comprise the ten K annual and the ten
Q Quarterly's which went from being a twenty pages long
to something like sixty seventy eighty pages It was the
greatest boon for CPS everywhere as the need for re
ALOF deters nearly doubled overnight tons of little things had
to be checked confirmed and turn your head and cough
by outside parties The CEO's trip to Hawaii was that
really unnecessary business trip Did he really need to take
his mistress with him to take dictation The four hundred
dollars for surfing lessons A business expense Really Well if
he was the CEO of Oakley sunglasses and maybe you
could make that argument But his head of a sea
Delko sellers of windshield wipers and not so much in
fact socks found enormous volumes of little fraud rampant across
many many filings and in amazingly short periods of time
was really just a few years Most of those smaller
fraudulent corporate leakages were cleaned up with haste and to
the bane of ambulance chasing lawyers who were used to
getting rich off of suing companies for fraud Well the
downside of socks was that it was blanket form meaning
that it treated General Electric the same way it treated
etc Tiny company's doing only a fifty million dollars in
revenue We're required to make the same detailed filings as
behemoth company's Doing desa billions in revenue is that behemoth
could advertise that fifty million dollars in audit expense across
an enormous base The tiny companies could not sew socks
Compliance costs became a meaningful expense too Small companies that
had precious few resource is to apply to growth so
subsequent to Sarbanes Actually a number of amendments were made
that allowed for small companies to quote file light Basically
the level of detail required in cross checking was minimized
and a kind of tiered structure began to be applied
to companies of different scale and scope Such that the
increased government scrutiny on accounting practices and the legalities of
transactions was not in fact heavy friction to the normal
highly competitive business practices living out there on the horizon
So Sarbanes Oxley exist today in all its living glory
producing second and third homes for partners in large aqui
accounting firms everywhere giving them plenty of spaces Teo you
know wet the bed