Accounting - Go on... admit it.

(From Financial Director)

Byline: Peter Williams, a chartered accountant and freelance journalist.

The debate rages over the effectiveness of Sarbanes-Oxley and the impact it has on the corporate strategy of multinational organisations worldwide, as well as on transatlantic trade, listings and merger activity. However, at the risk of upsetting FDs and their staff, whose companies have a US listing or who work for subsidiaries of US-quoted companies - all of whom are doubtless struggling to comply and spending millions in the process - Sarbanes-Oxley seems to be working.

While the entire burden of Sarbanes-Oxley has fallen on preparers of accounts, the intended beneficiaries are the shareholders who should be able to place greater reliance on the financial information presented to them. According to evidence obtained from Parson Consulting, a US financial management consultancy, the percentage of companies in the Standard & Poor's 500 stock index that missed analysts' earnings per share projections fell to just under 30% in third-quarter 2004, an 18-month low.

Parson claims this is due to the Securities and Exchange Commission's accelerated reporting deadlines. These regulations shortened the timeframe in which companies report quarterly and annual earnings, while at the same time requiring greater transparency and accuracy of financial information. But it seems illogical to suggest that doing something faster means you necessarily will do it better. Why, then, would forcing FDs to do more in less time produce better results?

Sarbanes-Oxley has forced companies to examine their reporting systems in a critical fashion in a way they had not done for many years. The result of this has been to lead global companies to streamline their processes and employ more sophisticated financial systems that improve the accuracy of forecasts and projections that were given to the market and help in producing figures faster.

Parson claims that one reason why a sizeable number of earnings misses occur is because finance functions were trying to work with outdated or non-comprehensive financial management infrastructures that don't allow companies to provide accurate, timely information.