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The Sarbanes-Oxley Effect

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With the Enron's trial, and a number of other sensational scandals, finally over, the US public sector can finally put the dark clouds behind it and resume its business. Only it's not business as usual. The Sarbanes-Oxley law (a.k.a. Sarbox) which was enacted as the result of the Enron's fallout now weighs heavy on US markets.

In a nutshell, Sarbox ratchets up the scrutiny on public companies in an effort to keep them honest. Company executives can no longer use ignorance to sidestep bad accounting and fraud. But who are we kidding, most of these guys caught in the mess were well aware of the misdeeds and profited handsomely from them. Now they will be held accountable in the eyes of law and that should keep most of them on the straight and narrow.

Let's face it, if the boss is unaware of the goings on in a company, then he or she is not doing the job that's paying them top money, and I don't see how they could shirk responsibility given that they were tasked to look out for the shareholders' interests.

Many now blame Sarbox for the reluctance of some corporations to go public in the US. Some have chosen to go public in other countries with more lax accounting rules and to list their stocks in exchanges abroad. Their issue with Sarbox is one of complexity, bureaucracy, and wastefulness. Some fear an erosion of the US markets status if the situation continues and are calling for more relaxed accounting rules.

I can't say I am familiar with the intricacies of being Sarbox compliant, but I wonder why some companies would resist the very tool that can generate confidence in their accounting practices and attract the investors. If a company is afraid of subjecting itself to strict accounting rules, perhaps that company is not worth investing in.

Yes, the more stringent accounting rules come with some painful consequences such as additional expenses and resources, but would it make the US market less palatable to companies and make the US markets second rate? Even so, would investors choose to invest their money in more risky markets rather than a certifiably honest system.

I find it improbable that stricter US accounting rules would cause grave harm to the US markets. On the contrary, even if there is some short-term pain, investors would eventually gravitate towards a market that can provide more transparency and integrity. After all, if blind risk-taking is what investors are after, they can just take their money to a casino and roll the dice.

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