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Keep Sarbanes-Oxley

Keep Sarbanes-Oxley

by Toby Lucich on March 20, 2007

The Bush administration — with the vocal support of business interests — is arguing that the time is right to loosen some of the requirements of the Sarbanes-Oxley corporate reform law, passed after the scandals at Enron and WorldCom. But if anyone doubts that these reforms, designed to increase accuracy and accountability, are necessary, consider this: According to the research firm Glass Lewis, nearly 10 percent of companies listed on exchanges in the United States refiled their financial statements last year after finding mistakes.

In those cases investors were making decisions based on incorrect information, and some executives were being paid for results they didn’t achieve. These are often more than small bookkeeping errors. Last week, General Motors restated five years of financial results. In its annual report, the company warned that the lack of effective internal controls “could adversely affect our financial condition and ability to carry out our strategic business plan.”

Internal controls are the methods that companies use to ensure that their financial statements are accurate, like reconciling cash on a company’s books with its actual bank statements or running built-in software checks of accounts. They include such simple steps as having a code of ethics and determining whether the company has sufficient accounting staff.

Keep Sarbanes-Oxley

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