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Sarbanes-Oxley News & Developments
Give Us Disclosure, Not AuditsThe Sarbanes-Oxlet Act was crafted in haste and under political pressure, and it shows.
> > Shorn of its legislative language and maze of regulation, the Sarbanes-Oxley Act, the sweeping corporate-reform law passed last summer, has one principal effect - to enshrine the GAAP audited financial statement as the central financial disclosure of publicly traded companies.
The deficiency associated with audited financial statements is not their accuracy - as Congress seemed to think - but their adequacy. Instead of rushing to enact something, Congress should have taken steps to diminish the importance of audited financial statements by emphasizing other forms of disclosure.
Contray to what Congress seemed to believe, there is no such thing as a statement of income under Generally Accepted Accounting Principles (GAAP), that is inherently correct or can be made more correct by a better audit. All such statements are the product of management opinion about a vast number of events and circumstances that may or may not arise in the future. Financial statements are prepared by company management, not its auditors.
Creating a special agency to regulate auditing, and focusing the attention of the SEC on the importance of sudited financial statements, Congress was fighting the last war.
Source: The Wall Street Journal article
Published:2003-06-04
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