Category: Busi-ness

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S is for Sarbanes-Oxley

Remember the Robber Barons from 11th grade U.S. History? They’re still here. Drawing by Udo Keppler, on Wikipedia.

Sarbox! Sounds like a science fiction warrior–Sarbox looked across the valley of mutants and gripped his tekbar laser sword tightly, ready to lead his small band against the scourge of Junoian invaders…

Sarbox! Is it a new prescription drug? Reduces eczema and weakened spine. May cause dizziness, drowsiness, and uncontrollable twitching.

The Sarbanes-Oxley Act of 2002, enacted in the wake of a series of massive corporate scandals, mandated improvement in corporate governance for publicly-held companies. It required improved internal controls, enhanced financial disclosures, independent auditors, and stiffer penalties for violations. Public corporations hated it, especially the ones who were fiddling their books.

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R is for ROI (Return on Investment)

Graphic from JFitzgerald.com.

ROI is overrated.

Return on Investment (ROI) is one of the most widely used financial ratios, like Earnings Per Share (EPS), Current Ratio (CR), or Debt to Equity (DE). These things grow like weeds, once fledgling MBAs get hold of an HP 12-C calculator. Soon every conversation gets sprinkled with acronyms. Then, executives try to apply financial ratios to everything, and anyone who objects that you can’t put a value on everything is told to take a hike.

Net Profit means after subtracting the Cost of the Investment. Graphic from investinganswers.com.

Not Entirely Useless

ROI can be a useful measure, especially in making choices. Suppose you have a portfolio–that’s investor slang for “bunch of different”–investments that you made of differing amounts. You want to know which one has grown the most consistently over the last five years. An ROI comparison makes the numbers comparable.

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Q is for Qualified Opinion

Normally, I prefer facts over opinions and prefer the fact-giver to be qualified. However, when it comes to auditors, I do want opinions, but–oh boy–I want mine Unqualified.

The raging debate over audit opinions is one of the juiciest parts of accounting. Aside from the myriad types of Fraud (See letters “F” and “K”) that can happen, companies with good intentions still stretch their accounting practices a bit. Even when they’re large and public, with their financials in plain sight. Especially when they’re large and public, it seems. Just ask GM and Toshiba.

But let’s step back a minute. What does an auditor do and where does a Qualified Opinion come into the picture?

I’ve known plenty of auditors. They don’t always wear glasses.
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