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Companies that miss accounting deadline may see shares drop

Companies that miss accounting deadline may see shares drop

by Rick Turoczy on November 13, 2004

Some U.S. companies that miss Monday’s deadline for certifying the effectiveness of their financial controls probably will see their share prices fall, according to a Bear Stearns Cos. study.

The U.S. Sarbanes-Oxley Act’s Section 404 requires an evaluation by independent auditors of companies’ controls, systems that verify financial transactions and reporting. Any “material weakness” that causes a certification delay must be identified.

The Sarbanes-Oxley Act was passed in 2002 to improve audits after improper accounting at companies such as Enron Corp. and WorldCom Inc. caused bankruptcies and shareholder losses. Ten percent of companies may miss the controls deadline, said Chris Senyek, an author of the study. Companies such as UTStarcom Inc. and Interpublic Group already have alerted shareholders they may not meet the deadline.

“We believe investors in companies that are unable to comply with Section 404 are likely to demand higher-risk premiums,” the study said.

Companies that miss accounting deadline may see shares drop

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