This is the regulation that is supposed to help avoid the type of financial scandal that brought down Enron along with its auditor and former big five firm Andersen. It will also, according to the US, stop the type of situation that near-ruined WorldCom, now trading under the name of MCI in an attempt to rub out the past.
So what was the first concluded case under this Act?
It was with a poultry company called Rica Foods, which allegedly certified its financial statement without including a report from an external auditor, despite claiming to have done so. I say allegedly because the case was settled with no admission or proof of guilt on offer. The sum total of this action was a $25,000 (£15,842) fine for Rica’s chief executive Calixto Chaves.
Now I know the Act will no doubt show its true worth in the future, but this case leaves me completely underwhelmed. No satisfactory conclusion to a small-fry case with one insubstantial fine against one executive with another that was charged, the chief financial officer, being let off the hook for providing information to the SEC. It doesn’t exactly fill you with confidence that the legislation will work its magic.
Let’s not forget that this Act has caused a major uproar both inside and outside the US. Many have labelled it a hasty reaction to the financial scandals that befell US companies and that much of it has not been properly thought through.
It has caused outrage in the European Union over its extra-territorial effects on auditors and will add another level of complex and costly red tape to those firms and companies to which it applies. Many smaller auditors are looking at abandoning the market for public companies due to the problems that the Act creates and the damage it could do to their business.
It also, no doubt, cost the US a tidy sum to set up. And what have they got so far in return? A poultry, sorry paltry, $25,000 and no convictions. Let’s hope that the Act shows its teeth a little more in the future or it will undoubtedly give its knockers some powerful ammunition.
- Paul Grant is senior reporter at Accountancy Age.
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