Please enable JavaScript to view the comments powered by Disqus.

We use cookies on our website to give you the best online experience. Please know that if you continue to browse on our site, you agree to this use. You can always block or disable cookies using your browser settings. To find out more, please review our privacy policy.

COVID-19 RESOURCES AND INFORMATION: See the Atlanta Fed's list of publications, information, and resources; listen to our Pandemic Response webinar series.


Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

Authors for Policy Hub: Macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

Comment Standards:
Comments are moderated and will not appear until the moderator has approved them.

Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political.

In addition, no off-topic remarks or spam is permitted.

May 31, 2005

A Sarbanes-Oxley Portrait

Has Sarbanes-Oxley been effective?

Some say, in broad terms, the answer is yes.  This comes from a report by the CFO Executive Board:

... most corporate executives and directors have told us they believe that most of the Act was worthwhile. It improved governance and financial reporting “hygiene,” it strengthened Board oversight and it improved the focus on corporate ethics and compliance. The market evidence supports their conclusion. The economic recovery did not stall, the stock markets returned to higher levels and the dramatic net outflow of cash from U.S. mutual funds that began in early 2002 reversed and quickly returned to a net inflow.

But maybe it was the thought that counted:

Critically, most of these benefits appeared soon after the passage of the Act, well before most of the new regulations were crafted and implemented, and far before virtually anyone – particularly investors – understood the requirements and ramifications of Section 404.

Apparently, the actual implementation of the legislation has not had much of an impact on public consciousness.  According to a November 2004 Rasmussen Reports survey conducted on behalf of Hudson Financial Services:

Eighty percent of U.S. workers and 76 percent of employed investors have never heard of the Sarbanes-Oxley Act of 2002...

Among working investors, defined as owning at least $5,000 in stocks, bonds and mutual funds, only seven percent indicated that Sarbanes-Oxley had increased their confidence as an investor. Likewise among this group, only seven percent said it had increased their confidence in the leadership of public companies.

From the CFO Executive Board document:

Heightening the frustration experienced by executives is the lack of evident investor interest in Sarbanes-Oxley implementation. Stock price reaction to material weakness disclosures has been tepid, and companies face few, if any, questions on Section 404 from investors. In fact, two-thirds of finance executives report that they have received zero questions on the topic from investors at key events

What are the costs?  The CFO Executive Board document claims:

April 2005 survey data indicates that senior financial executives (Chief Financial Officers and Controllers) expect to spend as much as a quarter of their time on continued Section 404 implementation in 2005, and as much as a fifth of their time on that activity in 2006. Unfortunately, senior management distraction by Section 404 does not end with Chief Financial Officers and Controllers. Responses indicate that up to 10 percent of other senior executives’ (e.g., CIO, COO, General Counsel) time was devoted to Section 404 in 2004.