No pain no gain... 515



  • Over 500 US listed companies (some of them with primary listing in other countries) disclosed serious external disclosure control deficiencies in 2004.
    It works 😉
    I still believe that we will have more creative types of fraud in the future.
    Even with SOX:
    1.Legislation can not stop bad people from doing bad thingslike the threat of prison has not stopped people from killing etc.
    2.Auditors are unlikely to identify every lapse, they will provide opinion’ that the financial statements are fairly presented and after that they will state that the financial statement is responsibility of the company’s management.
    3.Lawyers have managed to be out of the scope and the problems of SOX.
    4.The real culture in many companies says: cover the trails
    5.Some C level executives will always be able to do a lot of creative things and now they will start to learn about offshore companies :roll:
    6.Auditors hate computer forensics and business intelligence so these are in fact out of the scope of SOX.



  • While I agree with the general ‘feel’ of what you say, my opinion differs from yours as follows:
    It is too early to say it works, there is growing evidence to support a claim that a degree of civil dissobedience is apparent. Companies are forecasting that they will receive qualifications when internal control attestations are reported and pre empting such reports by announcing their expectations in advance and, if necessary, taking a hit on the share price. There are even rumblings that there is growing support for repeal. It cannot be seen to be protecting investors interests when the effects of the act are to depress the share price and reduce the funds available for distribution to investors by the increases in audit fees being experienced. I have posted before (under a different name and to Karl Nagel’s site) that I wish I had the courage to advise (and the money to indemnify) a client to state his internal controls to be to only employ concientious, honest and capable staff.

    1. I agree, but the creativity required to achieve bad things is a result of the good people’s education (by experience) rather than SOx. SOx would not have prevented Enron nor Worldcom.
    2. I strongly believe that auditors have been, at least partially, culpable in all of the recent scandals. There are instances of failure reported in the financial papers with monotonous regularity (the recent leasing issues being a case in point) yet the corporate world retains an implicit faith in their auditors. Recent advertisements for SOx and internal audit people are now asking for ‘Big 4’ trained personnel.
    3. You are correct but I am not sure that Lawyers are relevant in the context of financial statements.
    4. I really do not agree on this point, maybe I’ve been lucky but I have only come across one such company (in thirty seven years) and that was privately owned. In my experience companies and their employees are far too busy trying to make money.They have internal controls in all the obvious places, often for commercial reasons, but rely on their personnel’s personal qualities to ensure the veracity of their financial reports. I have never found this trust to be misplaced. The typical environment has been one of mutual trust and respect, intrusions such as SOx (and our IFRS) are generally resented.
    5. Yep, there is nothing you can do to stop fraud you can only make it more difficult. Educating potential fraudsters is not a good thing.
    6. They also hate things they cannot charge excessive fees for, thank heaven for the SOx bandwagon.


  • SOX allowed SEC to establish professional standards of conduct for attorneys. SEC tried twice to regulate the profession, but both times the legal lobby prevailed.
    Unfortunately, we had intense lobbying from the legal community and the final rule was changed.
    A law firm investigating the whistle-blower memo regarding Global Grossing’s accounting had similar conflicts of interest . Some of the attorneys reportedly owned their client’s stock.
    There are a lot of efforts to regulate the accounting profession, but lawyers continue to be relatively unpoliced.



  • SOx would not have prevented Enron nor Worldcom
    Maybe, maybe not. But they would have ended up in jail a lot quicker.
    However, with the additional requirements on auditors and non-executive directors and financial experts some parties may have acted somewhat differently. Similarly would Ebbers, Lay, Skilling et al have acted the same way if they had had to make a more explicit assertion?
    I strongly believe that auditors have been, at least partially, culpable in all of the recent scandals.
    I generally think this is overplayed. Auditors come into the firing line largely because they have the PI insurance.



  • Denis,%0AEnron and Worldcom are not going to jail. My point is that they went bust. One could argue that the actions of their executives were precipitated by the fact that they tried to keep the share price higher than it should have been during the time that their companies were going bust. SOx would not have protected the shareholders but it may have meant that they would have been a different set of shareholders who suffered. For that to be the case the auditors would have needed to be on the ball, need I say more? Your seeming faith in executives signing more explicit assertions appears to imply that crooks will find it difficult to lie.%0AInvestors rely on auditors and their reports to underscore the veracity of the financial statements on which their investment decisions are based, when they fail to do this they become culpable. The outside world regards these people as experts, often (and certainly in cases of fraud) they are proved not to be so. %0AThe cases that resulted in SOx (and all of the other recent scandals) would have been spotted earlier had the auditors been on the ball. My point is that the 1% of turnover that SOx compliance appears to be costing is being paid to people who are, at least partially, culpable. More than half of SOx is concerned with auditors and auditing yet it is the filers who are paying the total bill. It’s nothing to do with insurance, auditors come into the firing line because they deserve to be there.



  • Denis,
    Enron and Worldcom are not going to jail. My point is that they went bust. One could argue that the actions of their executives were precipitated by the fact that they tried to keep the share price higher than it should have been during the time that their companies were going bust.
    Yes, but the key is that Enron and Worldcom went bust becuase of the actions of their executives not anyone else. It is easy to blame the auditors but at best they are only able to DETECT if something has gone wrong they can’t prevent it. In those two well-known cases the auditors were also deliberately misled by those same executives.
    Whilst it is true that auditors sometimes do not cover themselves in glory in these cases, they are never the cause of the problem.
    Your seeming faith in executives signing more explicit assertions appears to imply that crooks will find it difficult to lie.

    Not really what I was saying. The point is that both Ebbers and Lay have tried to hide behind the ‘I didn’t know what that sneaky CFO was up to’ defence. Ebbers didn’t succeed, Kenny-boy may or may not. However, under SOX that defence will not cut it. Accountabilities are more firmly placed on the C-Grades and their various assertions carry a legal burden.
    Putting it another way, it’s easier to lie if you don’t need to put it in writing and sign-off on it.
    Executives will still sometimes lie and cheat and companies will go bust. They will find it harder to get away with it.


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