Sarbanes-Oxley Act

[Rugnuts]

Well I've heard Newt say this is one thing he would repeal.
I never really knew what was in the act and just took it for granted that if newt thought it was bad, he had a reason.
Well my wife is now taking some online classes for work. One class being "Business Law". In the textbook, SOX was brought up in Chapter 1.
In the briefest description it stated the act forced Publicly Held companies "to be accurate when submitting data to SEC" and "Upper management (CEO, CFO, Board) had to honestly know the financial status of the company".

Now at first glance, this seems like it should be obvious. And it sounds like a legit law. As libertarian/conservative, i want my laws/regulations to be minimal. I dont want total anarchy. Murder, theft, etc should remain illegal. We need property rights.

To repeal this law is to say "if you want to invest in the stock market, good luck, its legal to lie to stockholders".

What am i missing here?


(i briefed up on the act HERE)

[Gratiot]

To repeal this law is to say "if you want to invest in the stock market, good luck, its legal to lie to stockholders".

What am i missing here?[

In my opinion, the biggest issue with SOX is with it's implementation.  While it's directed at major corporate fraud from the senior executive level, it's policed at the lower level where such fraud is highly unlikely.  Additionally it does hamper ones flexibility.  Which is good in that it standardizes many practices and partly reduce the likelihood of book cooking, it also limits many acceptable business practices.  The biggest gripe that private enterprise likely has though, is that it's so vast that it's requires significant operational changes in reporting procedures.  One could argue though that many of the policies it mandates, should have been implemented to begin with, especially for publicly traded companies.  I don't think anyone doubts, that it does improve the level of accounting and financial picture of a company, it's just possibly at a not insignificant cost.  One could also argue that at it's size, it's nearly impossible to know if a company is fully in compliance, which weakens it's intended purpose.  It could be argued either way, with zeal.  I don't think anyone believes it's perfect, as it was hastily put together.

[Eupher]

Gratiot understands this a helluva lot more than I do, but as I remember reading about it, the biggest problem with SOX is the massive costs associated with administering it.

Like most government regulations that require this and that from the private sector, the costs are simply passed to customers.

Which isn't all that great for competition and business, right? 

SOX happened because of Enron and Tyco, among others.

Just another example of punishing the masses because of the fraud of a couple of big guys. 

[Rugnuts]

Which isn't all that great for competition and business, right?  

If all companies have to deal with it how does it affect competition?

if this law duplicates other laws, then i understand But if its purpose is to NOW require the financial statements submitted for stockholders "To Be Accurate" and standardized then i am flabbergasted that that wasnt already a requirement. If it now makes it so upper management must "Be in the Know" of the company's financial status, once again, why wasnt that already a requirement.


If its in response to enron, et. al, did they break the law? was there laws already in place that they broke? if so this law would be redundant.


Disclaimer, i do not invest in any market. No 401k, no bonds, no gold. But if i did, i would research my investments because i believe the responsibility is on the investor. Your investments do good, congrats. They do bad, better luck next time. That said, i would want the info to be truthfully honest. Getting bluffed or the run-around doesnt make a safe investing market. Our culture today leans on investments for the future. Retirement relies on it. I dont know too many people that save up a few million dollars to create a nest egg. its mainly done through investing over the years and building up that nest egg. For that to work best the people need to know how to properly invest. The people that go in blindly and lose, hate to say, deserve it. But i can feel the blame can lie on the business side if they are corrupt. If the SEC wasnt put in place to prevent this before SOX, wtf have they been doing.  

[TVDOC]

If all companies have to deal with it how does it affect competition?

if this law duplicates other laws i understand, but if its purpose is to NOW require the financial statements submitted for stockholders "To Be Accurate" and standardized then i am flabbergasted that that wasn't already a requirement. If it now makes it so upper management must "Be in the Know" of the company's financial status, once again, why wasn't that already a requirement.


If its in response to Enron, et. al, did they break the law? was there laws already in place that they broke? if so this law would be redundant.

It impacts US competitiveness by placing US corporations at an operating cost disadvantage with foreign competition.  It further is a veiled method  of increasing corporate taxes.

I think that the biggest bitch that I have with SOX is the "price to current market" requirement for inventories and assets.  No longer are companies able to price (in the accounting sense) assets and inventories at the most advantageous level.......a big disadvantage when it comes to tax time, like the elimination of LIFO (last in, first out) costing for inventories.  

EXAMPLE:  My company builds a warehouse, it costs $5,000,000 to build.  Before SOX I could set my depreciation schedule up to depreciate the entire 5 mil and forget about it (I would be taxed on the gain or loss when I finally disposed of it).......now let's say the commercial real estate market in my area takes a bath and in one year my warehouse is only valued at 3 million (bear in mind that I have no intention of selling it).......under SOX I can now only depreciate that asset on the basis of its current value, and must therefore pay more taxes to the government on earnings.  SOX Sucks......It discourages capital investment in volitale markets, and creates uncertanty, which is the enemy of good business planning.

As mentioned above, SOX also creates a massive amount of internal paperwork also increasing costs.

It's a great example of "knee jerk" legislation.......a pail of milk goes sour, so Congress shoots the cow.....

doc

[Rugnuts]

I think that the biggest bitch that I have with SOX is the "price to current market" requirement for inventories and assets. No longer are companies able to price (in the accounting sense) assets and inventories at the most advantageous level.......a big disadvantage when it comes to tax time.

As mentioned above, SOX also creates a massive amount of internal paperwork also increasing costs.

doc

most advantageous level? that sounds like skewing the books, AKA lying. Like i said earlier i want honesty. If it just standardizes how they report something, that makes sense to me. All reports should follow the same guideline.For example, the talk about how they compute unemployment today. If they start to omit something to make it look better that false advertisement. Standardized reporting makes sense.
i would to know more about what "price to current market" means.

More paperwork? If they dont want the extra paperwork, don't go public. If the companies want people to invest in them they should be willing  to do what it takes to offer the info. maybe its not that simple, IDK.

Back to the issue of the SEC's job. As i said before, its up to the investor to know what hes investing in. They need the info to make their decisions.  The SEC is suppose to make sure they do it properly so people have faith in the market. Whether or not we needed SOX to do that IDK. I assumed the SEC was already doing what SOX was suppose to implement. If so SOX is redundant and could be dropped.   

Not trying to look hypocritical, i can say lets just get rid of SEC altogether. And Tell everyone they are on their own. I would actually prefer this. But since we have steered our culture to rely heavily on investing, It would be devastating to the economy because a majority would just pull out of the newly unregulated financial world.

[Rugnuts]

ok after your edit you make a good claim, im on board.

the law has more bullshit in than what i read.

for the depreciation thing, sounds like that needs to be fixed through a major tax overhaul. i dont own any business so i know... ziltch, about corporate taxes. you mean to tell me they pay taxes on just having assets? the building i bought and have as an asset gets taxed each year?

[TVDOC]

most advantageous level? that sounds like skewing the books, AKA lying. Like i said earlier i want honesty. If it just standardizes how they report something, that makes sense to me. All reports should follow the same guideline.For example, the talk about how they compute unemployment today. If they start to omit something to make it look better that false advertisement. Standardized reporting makes sense.
i would to know more about what "price to current market" means.

More paperwork? If they don't want the extra paperwork, don't go public. If the companies want people to invest in them they should be willing  to do what it takes to offer the info. maybe its not that simple, IDK.

It's not really skewing the books if an asset is going to remain an active part of operations until it is used up.......like the warehouse......if it has to be appraised and reevaluated every year, that costs money, and for what?  The company is using it as a part of operations, it cost 5 mil.......it doesn't matter what it's worth at any given point in time except as a tax write-off........

And a lot of small and medium sized companies HAVE bought back their stock and become privately held because of SOX.

Further, have you seen a lot of public offerings lately?  I wonder why, most of them are going overseas.....if legislation like SOX is what you want, don't get involved in business........

doc

[IassaFTots]

SOX is good for one thing, that's for sure.  Audit firms are making a killing, and more lower level jobs are being created for keeping up with all of the paper trails required of it.   

[TVDOC]

ok after your edit you make a good claim, im on board.

the law has more bullshit in than what i read.

for the depreciation thing, sounds like that needs to be fixed through a major tax overhaul. i dont own any business so i know... ziltch, about corporate taxes. you mean to tell me they pay taxes on just having assets? the building i bought and have as an asset gets taxed each year?

Some states tax assets, and inventories (personal property taxes), but the depreciation on an asset is an offset to profits on the tax return.  If a company aquires an asset  (worth 5 mil in the example) they are allowed to divide that five million into say 30 equal installments (thirty years asset life less salvage value)........every year they can apply 1/30th of that cost to offset the taxes that they owe the government.  It therefore becomes  a "fixed" cost/value, and can be applied to the financial planning for the business......if it has to be revalued every year, the company never actually knows what their tax (and profit) situation is until the final calculations are made......hence the uncertanty....

doc

[Zeus]

Sarbanes-Oxley came about in part in response to a crisis in confidence in the american capitalism markets brought on by scandals at Worldcomm and Enron and others. It's purpose was to improve accountability of managers to shareholders. Major criticisms of the law are costs to implement and oversee, over reaching restrictions on risk and the new accounting rules and infrastructure imposed by the law. An argument can be made that the failures at Enron and the others were not accounting irregularities as such but other kinds of corporate-governance failure altogether, not even addressed by Sarbanes-Oxley.

[Rugnuts]

It's not really skewing the books if an asset is going to remain an active part of operations until it is used up.......like the warehouse......if it has to be appraised and reevaluated every year, that costs money, and for what?  The company is using it as a part of operations, it cost 5 mil.......it doesn't matter what it's worth at any given point in time except as a tax write-off........

And a lot of small and medium sized companies HAVE bought back their stock and become privately held because of SOX.

Further, have you seen a lot of public offerings lately?  I wonder why, most of them are going overseas.....if legislation like SOX is what you want, don't get involved in business........

doc

i repeat, i dont know much about running a business, and i dont know corporate tax law.
if i read your earlier post correctly, the building you bought, you depreciate the value of it over a few years to use the cost of it to reduce tax burden on profits over several years, no? but now with SOX you dont get to depreciate unless the market drops, right? and you have to repeatedly assess the value. i get that. they changed the taxing system and that puts more burden on the company. this is why i was looking for more info on SOX. But, now i have more of a problem with the tax law than SEC requirements.

i have no problem if companies want to go back to being private. and i have no problem if more companies stay private. that's their choice. I feel that more companies should and be very vocal as to why, government regulation.

[TVDOC]

i repeat, i don't know much about running a business, and i don't know corporate tax law.
if i read your earlier post correctly, the building you bought, you depreciate the value of it over a few years to use the cost of it to reduce tax burden on profits over several years, no?

Yes....

but now with SOX you don't get to depreciate unless the market drops, right? and you have to repeatedly assess the value. i get that. they changed the taxing system and that puts more burden on the company. this is why i was looking for more info on SOX. But, now i have more of a problem with the tax law than SEC requirements.

You still get to depreciate the asset, but the value (and depreciation) is no longer fixed at what it cost you to acquire......it's constantly changing based on market conditions......which are irrelevant since you don't plan to sell or otherwise dispose of that asset, increasing cost, paperwork, and taxes unnecessarily.

i have no problem if companies want to go back to being private. and i have no problem if more companies stay private. that's their choice. I feel that more companies should and be very vocal as to why, government regulation.

Unfortunately companies (unlike what the current liberal thought happens to be) dislike being vocal about political policy.......their objective is to return profits, so they adapt, adjust, and go on their way.......or they relocate elsewhere.......the cost of SOX is simply passed on to the consumer through higher prices on the finished goods.

doc

[Rugnuts]

well thanx for the discussion guys
i feel like i got a much better understanding on the basics of SOX.

[Gratiot]

It's true that a number of smaller businesses have turned private to avoid SOX compliance.

It's also true that a number of very large businesses announced that they were going to list overseas, specifically to avoid SOX compliance.  When SOX came out and the EURO was booming along with Asia, there was some intensely heated competitions for companies to go public under the competing exchanges.  While it has somewhat been argued that SOX was more of a scapegoat, due to other exchange incentives.  It does place American exchange agencies at a disadvantage when competing for new listings, as we no longer dominate the market by being the gratuitous destination.  Granted, it is starting to slightly turn in our favor again.  There has been some talk though, about whether the higher integrity in the financial picture that SOX intends to convey, is worth being a bit more restrictive on whom lists on the exchanges.  It's highly arguable though.

I mentioned earlier, there's also restrictions on traditionally accepted business practices.  There are restraints on B2B sales, under certain conditions.  Accounting restrictions as TVDOC mentioned.  As well as operational inventory management adjustments.  Where I work, we actually ended up scrapping millions of dollars in inventory, during the initial SOX compliance period.  Granted, that was due to poor implementation techniques by certain departments rather than the legislation requirements. 

The argument for SOX is that all of these requirements and restraints, reduce the potential of numbers playing, and provide a more accurate financial picture of the company.  Which allows the public investors to make informed decisions and have some faith in the facts being posted.

[obumazombie]

Let's not forget Global Crossing, where DNC chair Terry Mcawful made 15 million cashing out right before the stock went to zero.