Sarbanes-Oxley: The Stakes of Going Public

By Randee E. Day, Managing Director, Seabury Group

The Sarbanes-Oxley Act of 2002 established new and enhanced standards for corporate accountability and penalties for corporate wrongdoing. Without question, these new requirements have placed substantial demands on companies’ executives and all of those involved in the corporate accounting and reporting process. These requirements are designed to encourage the executive management of the company and its board of directors to provide their shareholders with transparent information about the company’s financial condition, results of operations, cash flows and general aspects of business. Failure to comply or misstatements in the financial reporting process can result in stiff civil and criminal penalties. Simply stated, those involved in the reporting task: the management, board and external auditors; no longer have a choice as to whether or not they implement the required SEC procedures. The integrity of the financial information, in the final analysis, is a reflection of the integrity of the management and board of directors and will determine the level of trust that investors will have in any financial reporting and disclosure of the company.

Specific examples of procedures newly mandated by Sarbanes-Oxley reporting include the increased power of the audit committee and the requirement of an internal anonymous hotline for employees. A frequent topic of discussion at the board level is whether the costs of Sarbanes-Oxley compliance and the potential for liabilities it creates outweigh the benefits of access to the public capital markets. The reality is that Sarbanes- Oxley seeks to impose upon a corporation a culture that values internal control and corporate governance consistent with the Act’s standards.

This is only an excerpt of Sarbanes-Oxley: The Stakes of Going Public

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