in Accounting-Finance

SarbOx flawed, but fixable

James Surowiecki’s Sarboxed In?

  • The Sarbanes-Oxley Act was a political knee-jerk even the Republicans couldn’t avoid, in reaction to Enron, Worldcom, etc.
  • The complexity of the new rules went too far, requiring six figure enforcement costs, and possibly hindering small companies from going public. There are now talks of easing enforcement or modifying the Act.
  • But the problem SarbOx addresses is very real: to fake earnings and revenue, companies made acquisitions and hires they didn’t need. Two researchers estimate that companies who restated financials fired between two hundred and fifty thousand and six hundred thousand people between 2000 and 2002, slashing payrolls by more than twenty-five per cent, while other companies cut them by just 1.5 per cent.