NCPA - National Center for Policy Analysis

Certification of Corporate Accounting May Carry Unexpected Effects

August 16, 2002

Requiring corporate officers to certify the accuracy of their company's accounting statements may carry some surprises, observers predict.

  • The most serious may be to discourage risk -- generating lawsuits due to accounting disputes because certification amounts to promising the impossible: indisputable accounting.
  • Just to play it safe, executives may shun bold new ventures.
  • Critics charge that the new rules will be a bonanza to trial lawyers, with CEOs and CFOs becoming juicy new targets for class-action suits.
  • Executives may well demand greater pay to compensate for the added risks -- and higher insurance premiums to cover those risks.

Finally, since certification applies only to publicly traded companies, promising new companies will have an incentive to stay private -- depriving investors of new opportunities.

Source: Alan Reynolds (Cato Institute), Editorial: "Expect Adverse Effects," USA Today, August 16, 2002.


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