Topic: The Sarbanes-Oxley Act of 2002.
Also known as SOX is legislation enacted in response to the high profile Enron and WorldCom financial scandals to protect shareholders and general public from accounting errors and fraudulent practices in the enterprise. SOX was enacted in response to the accounting scandals in the early 2000s.
Although the act’s introduction is credited with calming financial markets and raising investor confidence, its unprecedented reporting burdens and paperwork requirements are blamed for extremely high compliance costs and a share of decline in the competitiveness of the U.S Financial markets.
Suggestions: In order to ensure timely reporting, issuers should immediately adopt internal procedures and controls to require insiders to report any transaction in the issuer’s securities on the day such transaction occurs. Suggesting pre-sale notification to the issuer to provide adequate time to review the proposed transaction and consider any complicated issues.
Issuers should send periodic alerts and reminders to directors, executive officers and greater than 10% beneficial owners regarding the importance of prompt reporting of any transactions in the issuer’s securities.
Issuers should consider designating one or more officers to whom insiders may grant a limited power of attorney for purposes of future required filings. Through such an arrangement, issuers would have greater control over filings to ensure that they are made within the prescribed time period.
Along with these recommendations certain other areas of the Act can be reformed for betterment.
Sources:
· PriceWaterHouse Coopers paper on SOX 2002 and proposals.
· SOX ACT: Was it a wrought? by Elizabeth K. Keating, Eli Goldston, Harvard Univeristy.
· Financial Impact of SOX Act on Small and Large public US industries, Stephen Primack, University of California, Berekely.
