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We investigate how the Sarbanes-Oxley Act (SOX) impacted corporate transparency in the statutory risk disclosure of foreign private issuers listed in the United States. We examine whether SOX is complementary to and consistent with the existing national standards that foreign issues are obliged to comply with in addition to SOX. Furthermore, we elaborate on the perceived cost and benefits of the Act for cross-listed companies. Results from a questionnaire-based survey suggest that the introduction of the SOX made the U.S. financial market less attractive to currently cross-listed foreign companies as well as potential new foreign issuers.
What is transparency? What does it do? How much of it do we need, and for what purpose? This book includes chapters that address transparency in different markets and at different levels: from corporate financial disclosure to lobbying; from the risk incentives facing banks to competition and environmental policies.
Abstract: INTRODUCTION: The overlying theme of my research project is investigating the implications of Sarbanes-Oxley (SOX) Act for U.S. foreign relations since its release in 2002. To clarify the focus of this project, I will be concentrating on the requirement under SOX Sections 102 and 106 that stipulate no public accounting firm may issue or prepare an audit report for any public company without registering with the Public Company Accounting Oversight Board (PCAOB). This requirement impacts both U.S. and foreign public accounting firms alike. Furthermore, it has impacted the United States' foreign relations with countries throughout the world and will continue to dominate accounting agenda as the business world diverges away from a strictly domestic perspective into an all-encompassing international affair. RATIONALE: The rationale behind this project is that the PCAOB registration requires all PCAOB registrants to comply with the rules and regulations set forth by the Board regardless of nationality. Consequently, the PCAOB will face a series of obstacles imposing its regulations and subsequent Board actions on foreign firms. This includes enforcing SOX in international jurisdictions, addressing conflicting international accounting standards, political and economic instability, and general backlash toward the United States. The steady decline in foreign companies listing on the U.S. capital market since SOX was released is one example of the economic backlash the U.S. has experienced. METHODOLOGY: My research relies upon documentary analysis conducted on documents collected from trusted academic sources. I examined the congressional hearings on Sarbanes-Oxley prior to its acceptance, PCAOB standards and interpretations, U.S. Department of State releases, and numerous scholarly and academic journals, covering topics in accounting, law, politics and diplomacy. After I collected a sufficient amount of documents, I conducted an in-depth analysis on the source content and extrapolated evidence in support of my investigation. PROPOSED FINDINGS: The strong negative international reaction towards SOX and its implications for foreign accounting firms is a major problem for the U.S. that must be addressed. By requiring foreign registrants' compliance with PCAOB regulations, the U.S. is threatening the sovereignty of foreign nations around the world and tarnishing its image abroad. I believe that the U.S. will need to do one of the following in the near future: 1) Develop a system that evaluates the integrity of foreign oversight systems and accept those nations with an appropriate system as equivalent to the U.S. system, or 2) Work in conjunction with foreign nations to devise an international professional oversight system. Similar to the difficulties faced by the International Accounting Standards Board (IASB), it is unlikely that an international oversight board will be successful. As a result, the PCAOB should work to devise a method to evaluate existing foreign oversight systems and honor those systems when appropriate. If the U.S. does not respond to international concerns over SOX, foreign company membership on the U.S. capital market will continue to decline and the U.S. will isolate itself, suffering politically, economically, and socially.
This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
The U.S. capital market doors are now open to foreign entities, but compliance with U.S. filing requirements can prove a complex and burdensome undertaking for a non-U.S. company or legal counsel. The required process includes: navigating a maze of U.S. accounting standards deciphering and following the SEC's exacting financial reporting rules conducting effective audits despite major differences in accounting and auditing standards furnishing an endless supply of financial information accomplishing all this on time and in the proper format U.S. Securities Regulation of Foreign Issuers: Financial Reporting and Disclosure is the definitive guide through the complexities of U.S. SEC filings. This is the first and only reference work to focus exclusively on the unique accounting, financial reporting, and disclosure requirements of foreign entities issuing securities in the United States. Author Allan B. Afterman is a world-renowned authority on SEC accounting, disclosure, and auditing. He presents information in a how-to style, with clear, precise direction on meeting all U.S. filing and reporting requirements. This work provides numerous examples used by non-U.S. companies for practitioners to use as models for their own reporting. These models, its comprehensive coverage, and its straightforward style make this an essential manual for anyone needing to make sense of and comply with U.S. accounting, financial reporting, and disclosure requirements.
The Sarbannes-Oxley Act (SOX) is a mandatory requirement for all listed corporations in the US, whether foreign or not. Compliance is not an option. Other countries are developing similar legislation so the books value is international in scope. SOX is a hot topic and the effects are just beginning to be felt world-wide. This new book goes beyond the implementation phase of SOX and looks at the reaction to the Act in terms of costs, benefits and business impacts. This book is for Senior Managers in the Business and Financial/Accounting Communities who want/need to know what the reaction of business and government is to the SOX legislation, what it is costing and how the effects are penetrating through the business environment.Mike Holt presents a comprehensive review of the impact that Sarbanes-Oxley legislation has had on business, the financial community, governments and the public since its inception in 2002. The Sarbanes-Oxley Act has been somewhat successful, but not completely and the cost (well over a trillion dollars) might be considered too high a price to pay for the gains. This book takes a hard look at the costs, benefits and other impacts as well as at what influential and prominent financial, government and business leaders think about it now.* International in scope and content and including interviews with prominent business leaders, CEOs and CFOs of large and small corporations.* Compliance with The Sarbanes-Oxley Act is now mandatory for every listed US corporation and overseas corporations listed on US stock markets.* Covers the reaction of business and government to this legislation, what it is costing and how the effects are penetrating through the business environment.
The enactment of the Sarbanes-Oxley Act (SOX) of 2002 established several reforms to improve corporate governance and financial reporting practices for companies listed in US capital markets. Given the important role played by foreign firms in US capital markets, the present article discusses the early effects of SOX's regulation on foreign firms. Country- and firm-level data provide a descriptive analysis of the characteristics and trends in material weakness in internal controls reporting for firms cross-listed on US exchanges. The discussion includes a description of the implementation timeline of Section 404 for foreign issuers and compares some of these characteristics to reports from US firms. Understanding the characteristics of cross-listed firms, as well as country-specific qualities, is important to auditors and managers as they strive to maintain audit quality and improve internal control practices and corporate governance. This information is beneficial to regulators as these characteristics could have implications in the evaluation of foreign firms' compliance with Section 404 requirements.
We analyze the association between corporate transparency and interaction with the US markets for a group of 466 firms from 13 Asia-Pacific countries. Our analysis uses newly developed Transparency and Disclosure scores by Standard & Poor's. Results show a positive association between corporate transparency and the following types of market interactions: business operations in the US, US listing, and international equity ownership, US equity or direct investment in the company's home country, and business travel from the home country to the US. There is mixed evidence that a company's exports to the US, and the company's country's trade with the US, are negatively associated with the level of its disclosure. Our empirical analysis controls for the previously documented association between disclosure and firm size, performance, and country legal origin. The documented association between market interactions and disclosure contributes to the on going debate on the impact of globalization on governance practices.
We analyze the disclosure practices of companies as a function of their interaction with the U.S. markets for a group of 794 firms from 24 countries in Asia-Pacific and Europe. Our analysis uses the Transparency and Disclosure scores developed recently by Standard amp; Poor's. These scores rate the disclosure of companies from around the world using U.S. disclosure practices as an implicit benchmark. Results show a positive association between these disclosure scores and a variety of market interaction measures, including US Listing, US investment flows, export to and operations in the US. Trade with US, however, has an insignificant relationship with the disclosure scores. Our empirical analysis controls for the previously documented association between disclosure and firm size, performance, and country legal origin. Our results are broadly consistent with the hypothesis that cross-border economic interactions are associated with similarities in disclosure and governance practices.
The Sarbanes-Oxley (SOX) Act of July 2002 was created to address the financial malfeasance revealed during the investigations of several large firms by the Securities and Exchange Commission (SEC). The Act required public companies traded on U.S. exchanges to provide increased transparency in financial statements. Key portions of the legislation required firms to create internal financial controls and placed personal accountability with top executives. SOX mandated and standardized a greater degree of self-regulation. In the years following SOX, firms experienced significantly higher compliance costs, but they also benefited from the reduction of statement errors and fraud, increased accuracy in reporting, and greater investor confidence. After the Sarbanes-Oxley (SOX) Act of 2002, anecdotal evidence suggested that SOX impeded small, research intensive firms. We looked at research intensive firms going public before and after SOX to determine if there was a change in volume and quality of research intensive firms post-SOX. We found that firms that went public after SOX were fewer and had lower patenting activity. In the case of small and medium size firms, the cost of SOX compliance is likely to divert funds from research investments. We speculate that highly research intensive firms are more likely post-SOX to divert their IPO to non-U.S. exchanges, delay going public, or dismiss the idea of going public, as proposed in a "3Ds" model. The 2002 SOX US Congressional Act levied millions of dollars in new compliance costs on each foreign or domestic firm that went public on U.S. exchanges. Funding for regulatory expenditures must come from somewhere. We proposed that one likely candidate was research budgets, as research efforts have a more distant, less immediately visible, long term effect on firm performance. We suggested that large firms more easily absorbed the additional costs of SOX with a reduced effect on research and development budgets, while small firms were less able to maintain research budgets after SOX. In the aftermath of SOX, research spending did go down, most visibly in Biotech and Electronics. As the total number of IPO firms decreased dramatically after SOX, these two research intensive industries, plus Computer Software, were the only industries with a large enough sample size to evaluate. We saw that research intensive firms diminished dramatically, along with many non-research intensive firms, from IPO events after SOX. Where we had sufficient sample size, in computer software, biotechnology, electronics, and "other", we noted that research-intensive firms generally resisted the temptation to raid research budgets, finding funding for compliance elsewhere within the company or from the additional cash flow at time of IPO. Where firms did appear to greatly reduce research budgets was in the non-research intensive industries, where research budgets might be more of a discretionary expense. Firm size was not a factor in whether research intensive firms could better absorb the costs of SOX, although smaller firms tended to spend proportionally more on research in an effort to grow faster. After the enactment of SOX, we observed an indication that the markets valued research intensity even more than prior to SOX, perhaps understanding the vulnerability of research budgets being diverted to compliance costs. Overall, the data suggested that the effect of SOX was underestimated in this study, as the firms that were deterred from going public on U.S. exchanges were not in the sample evaluated. We only analyzed those firms prepared to accept the higher costs of SOX. The data set consisted of survivors, selected firms still willing to pay for SOX compliance as well as for research programs.