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Thursday, 15 August, 2002, 08:26 GMT 09:26 UK
Hundreds hit US clean-up deadline
Traders in Chicago
Corporate America needs to win back investor trust
More than 600 bosses of the US's top companies swore that their financial accounts were accurate on Wednesday.

They were responding to new US regulations to clean up corporate American and boost investor confidence after a series of damaging accounting scandals.


It soothes investors' fears a little bit - until the next debacle comes

Keith Janecek
Legg Mason Wood Walker.
As the certifications were made, the US Treasury Secretary Paul O'Neill told a conference in Oregon that "honesty in business is the new patriotism".

US Watchdogs - attempting to inject a new probity into corporate accounting - were overwhelmed by a late rush as bosses raced to meet the deadline on Wednesday.

Earlier in the day executives of less than half the 695 firms, for which sworn accounts were required by 1730 New York time (2130 GMT), had signed certification documents.

More than an hour after the SEC's deadline, bosses of 629 of the 695 companies due to certify had done so.

Restoring faith

The certification was ordered as part of a drive to clean up corporate America after Enron, WorldCom and Qwest upsets shattered faith in the accuracy of published accounts.


There is nothing better business leaders can do for this country right now than restore faith in the system that made it great

Paul O'Neill
US Treasury Secretary
As the certifications poured in, stocks on Wall Street climbed, with the Dow Jones industrial average closing up 3% at 8743.31 points.

Investors seemed to reassured by the high compliance rate.

"It soothes investors' fears a little bit - until the next debacle comes," said Keith Janecek, vice president of trading at Legg Mason Wood Walker.

Clamp-down

The administration of President George W Bush has threatened heavy penalties for executives caught cooking the books.

"There is nothing better business leaders can do for this country right now than restore faith in the system that made it great," said Mr O'Neill.

Of the 942 companies covered by the SEC's one-time order requiring certifications of results, 695 companies had to comply by the close of business on Wednesday.

Another 247 companies will file later.

The new regulation was imposed on 27 June, and followed a month later by a raft of business law reforms from Congress.

New laws

A substantial reform package, called the Sarbanes-Oxley bill, will soon make it routine for certifications from all 14,000 companies overseen by the SEC.


Until the SEC and (Department of Justice) have said more about Sarbanes-Oxley 906, people are flying blind on this

David Martin
Covington & Burling
There are two certification sections in the bill - section 906 took effect immediately and section 302 takes effect later this month.

The two sections are closely linked and lawyers were struggling to advise clients on how to handle them.

To avoid penalties, companies were being advised to start certifying all results on Wednesday.

"We're definitely in a transition stage," said David Martin, head of the securities practice at law firm Covington & Burling.

"Until the SEC and (Department of Justice) have said more about Sarbanes-Oxley 906, people are flying blind on this."

There is also another deadline later in the month for foreign companies listed on the US stock markets, such as Shell and Unilever, to meet.

Further guidance on the new rules will come on 29 August.

Errors

Fewer than a dozen firms were reported to have taken the opportunity of Wednesday's certification deadline to admit accounting errors.

AOL Time Warner, the giant US media and entertainment firm, was among them, saying it may have overstated the revenues of its America Online internet business by $49m (32m).

These companies also included retailer The Pantry, which said it had found an "inadvertent" $8m accounting error, which would not affect profits.

Household International, the second ranking US consumer finance firm, revealed that it had earned $386m less than previously reported over the last nine years.

The company, which issues Visa and MasterCard credit cards and issues home loans, said the revision followed a review of its accounting for "complex" contracts.

The energy trader Dynegy said its executive officers were unable to certify its financial results because of a pending earnings restatement.

Later deadlines

Some executives had already admitted they would be unable to meet Wednesday's deadline.

Alan Wright, the outgoing chief financial officer of embattled power firm CMS Energy, said he would be unable to swear to the accuracy of his firm's results.

"Under these circumstances, we feel it imprudent to certify [the books] at this time," said Mr Wright, retiring from CMS Energy later this month after more than a decade in his post.

About 250 companies, including Microsoft, have also been handed late deadlines, to fit in with their corporate accounting period.

 WATCH/LISTEN
 ON THIS STORY
Professor Jay Lorsch, Harvard University
"The benefit will be that those that have been a bit liberal with their accounting will now be more conservative."

Politics of regulation

Worldcom goes bust

Enron fall-out

Andersen laid low

FORUM
See also:

15 Aug 02 | Business
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25 Feb 02 | Business
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