Finance: What is Sarbanes Oxley?

What is Sarbanes Oxley? Sarbanes-Oxley was legislation passed by Congress in 2002 as a reaction to the “cooked books” of Enron, WorldCom and Tyco. It mandated additional accounting compliance, rules for financial recordkeeping, executive liability and stiffer penalties for fraud. It also added a significant burden of overhead costs for public companies, which led to increased business for the AIM in UK and for the Toronto Exchange.

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Transcript

00:26

stand All right In two thousand two It was as

00:28

if every morning greeted Wall Street Journal readers with a

00:31

new onslaught of how America was really a corrupt angry

00:34

tricky Dicky society of financial bed Weathers And in fact

00:38

it turns out well yes there were a few really

00:41

bad weather's but his things usually do overtime Karma spoken

00:44

The bad actors were jailed and found and stamped out

00:47

like mice who accidentally wandered into an elephant sanctuary happens

00:52

And in the ashes of all of those bad land

00:54

discoveries came a new set of laws revolving around how

00:56

proper accounting in disclosure should work And the leader of

00:59

that pack was socks or Sarbanes Oxley The act which

01:03

stipulated ah whole raft of procedures that companies had to

01:06

follow in filing public accounting documents The lion share of

01:09

those docks comprise the ten K annual and the ten

01:12

Q Quarterly's which went from being a twenty pages long

01:15

to something like sixty seventy eighty pages It was the

01:18

greatest boon for CPS everywhere as the need for re

01:22

ALOF deters nearly doubled overnight tons of little things had

01:25

to be checked confirmed and turn your head and cough

01:28

by outside parties The CEO's trip to Hawaii was that

01:32

really unnecessary business trip Did he really need to take

01:35

his mistress with him to take dictation The four hundred

01:40

dollars for surfing lessons A business expense Really Well if

01:43

he was the CEO of Oakley sunglasses and maybe you

01:46

could make that argument But his head of a sea

01:48

Delko sellers of windshield wipers and not so much in

01:52

fact socks found enormous volumes of little fraud rampant across

01:56

many many filings and in amazingly short periods of time

02:00

was really just a few years Most of those smaller

02:03

fraudulent corporate leakages were cleaned up with haste and to

02:07

the bane of ambulance chasing lawyers who were used to

02:09

getting rich off of suing companies for fraud Well the

02:12

downside of socks was that it was blanket form meaning

02:15

that it treated General Electric the same way it treated

02:19

etc Tiny company's doing only a fifty million dollars in

02:22

revenue We're required to make the same detailed filings as

02:26

behemoth company's Doing desa billions in revenue is that behemoth

02:29

could advertise that fifty million dollars in audit expense across

02:33

an enormous base The tiny companies could not sew socks

02:36

Compliance costs became a meaningful expense too Small companies that

02:40

had precious few resource is to apply to growth so

02:44

subsequent to Sarbanes Actually a number of amendments were made

02:46

that allowed for small companies to quote file light Basically

02:50

the level of detail required in cross checking was minimized

02:53

and a kind of tiered structure began to be applied

02:56

to companies of different scale and scope Such that the

02:59

increased government scrutiny on accounting practices and the legalities of

03:03

transactions was not in fact heavy friction to the normal

03:06

highly competitive business practices living out there on the horizon

03:10

So Sarbanes Oxley exist today in all its living glory

03:13

producing second and third homes for partners in large aqui

03:16

accounting firms everywhere giving them plenty of spaces Teo you

03:20

know wet the bed