After watching domestic equity markets decline at an alarming pace, insurers and fund managers breathed a sigh of relief as Congress passed the Sarbanes-Oxley Act of 2002.
Recent accounting and analyst scandals had contributed to sharp declines in the equity markets, hurting new sales and hurting revenues as fund net asset values declined.
Investors have reacted negatively to corporate accounting and other scandals, and the effect of these scandals on the equity markets has been dramatic.
The S&P 500 fell by 200 points–over 20%–in the month after WorldCom announced it was restating its earnings. Stock funds had $18 billion in outflows in June alone–the third largest monthly outflow in history.
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For variable annuities, net inflows in 2001 were down 32% from 2000 levels.
In response to these concerns, Congress passed the Act overwhelmingly with votes of 99-0 in the Senate and 423-3 in the House, and the President signed it into law on July 30.
Among the Acts major provisions is the creation of the Public Company Accounting Oversight Board to regulate the accounting profession. A private, non-profit corporate entity, the Board will be comprised of five members appointed by the Securities and Exchange Commission for five-year terms, two members of which shall be certified public accountants.
This Board shall:
Adopt auditing standards;
Adopt independence standards;
Inspect auditing firms;
Conduct disciplinary proceedings against public accounting firms and their personnel, who could face revocation of their license and fines up to $15 million;
Require public accounting firms to register with the Board; and