Sarbanes-Oxley Affects Your Investing

Physician's Money DigestMarch15 2003
Volume 10
Issue 5

Last year, a stream of corporatedisclosures concerning accountingpractices and questionableactions by business leadersunnerved many physician-investors.

In response, the Sarbanes-OxleyAct was passed by Congress andsigned into law by the president inJuly 2002. While the act grabbedheadlines last year, physician-investorsmay not fully understand the detailsof the law and how it will affect them.

The law created an oversightframework for the accounting professionand established corporate governanceguidelines. New boards andregulations formed by the act willaffect nearly every publicly held companyby making corporate officersand boards responsible for the accuracyof publicly reported financialdata. The goal of the act is to protectinvestors by improving the reliabilityand accuracy of disclosures.

Take a look at the following directimplications of the act on investors:

• Public company accountingoversight board—Consisting of 5members appointed by the SEC, thisboard oversees auditing practicesused by accounting firms as theyreview the financial disclosures ofpublic companies. The board also setsstandards for quality control, ethics,and independence. The practicesused or the individuals involved in theauditing process may be subject toboard scrutiny as well.

• Responsibility of companyofficers—The law holds corporateofficers responsible for the accuracyof the financial information reportedto the public. That means that boththe CEO and CFO have to sign documentsswearing that the company'sfinancial statements are accurate andare presented in accordance withaccepted standards. If, however, acompany has to restate its earningreports because of any omissions ormisstatements, the corporate officersmay be required to forfeit all or partof their bonuses or compensation forthe year and could be subject to furtherlegal action and/or fines. Anyfines collected would go to shareholdersinjured by the misconduct.

• Research analysts—In additionto strengthening corporate governancerequirements, the Sarbanes-Oxley Act also initiates a broad rangeof new rules governing the conduct ofsecurities analysts. This includesmaking the research function independentfrom investment bankingand requiring that analysts disclose inmedia and public appearances theexistence of any personal or corporateconflicts that may influence their recommendations.These measures wereput in place with the intent of helpinginvestors understand any relationshipthat may exist between a firm or analystand a company they follow.

While the Sarbanes-Oxley Act of2002 applies to research analysts,CEOs, accountants, and other officials, it also has other provisions, eachintended to help investors understandthe financial position of a company,and as a result, help restoretrust in corporate America.

Joseph F. Lagowski is vice president,

investments, and a financial consultant with A.G.

Edwards in Hillsborough, NJ.

He welcomes questions or

comments at 800-288-0901 or This

article was provided by A.G. Edwards & Sons,

Inc, member SIPC.

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