So Martha Stewart is free. Martha got sentenced to go to jail due to insider trading of M Clone (spell check please) stocks. I don’t agree with the amount of scrutiny that Stewart got, especially when she only benefited a few hundred thousand dollars. That is chump change compared to the billions of dollars lost due to the collapse of Enron and Andersen.
Andrew Fastow has done more damage in the capital markets of the USA than any person can imagine. One will recall that Andrew Fastow was the CFO of Enron prior to its collapse, and he has been credited for the off-the-books deals that brought down the pre-imminent energy company.
The result of Andrew Fastow’s deceitful ways still reverberates today. Due to the Enron collapse, the US Senate has enacted the Sarbanes-Oxley Act; this law requires companies that are public to have an audit of its internal controls by an independent third party such as a CPA firm. Specifically, the Sarbanes-Oxley Act mandates the documentation of key internal controls and management testing of these controls; then auditors will need to audit the internal control documentation and testing present an opinion on the integrity of the internal control environment of the company. Key internal controls are defined as controls that would prevent or detect fraud and/or financial misstatements that are material.
Attestation engagements are not too expensive, a quarter million for companies that are $2.5 billion in revenue. The expensive piece is the preparation for it. One company (revenue $200 million) spent $2 million preparing, while a client of mine spent $4 million (revenue 2.5) billion. OUCH!!!
The US capital markets are not exactly bullish these days even if there is more information available to investors regarding a company’s internal controls. Although its still early to tell if the added attest requirements will perk up investing activity. It sure will be interesting in the next few weeks as attest results become available to investors.