Guest Author - Mary Salzman

Back in May I published the first article which was an overview, in this series on the Sarbanes-Oxley Act (SOX) of 2002. Since then I have covered Section 404 - Internal Controls and Section 302 - Corporate Responsibility for Financial Reports.

This article discusses Section 409: Real Time Issuer Disclosures.

Summary of Section 409:

Section 409 is the one place in SOX that outlines the measures that I as an investor am interested in - the protection of the ordinary investor.

Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations. These disclosures are to be presented in terms that are easy to understand supported by trend and qualitative information of graphic presentations as appropriate..

Alright - what does this mean? Basically, you and I as investors want to know in plain English how well or poorly the companies in which we are interested (either because we have already invested in them or we are evaluating the worth of the investment) are doing.

Every investor should know that they can not rely on another's opinion of the soundness of a particular investment. We might research and evaluate certain expert opinions but in the final analysis we are the best arbiters of what, why and how we need to invest. Do we need growth (the stock will increase in value over time resulting in capital gains) or do we need income now (dividends being paid in the moment). Are we nearing retirement, attempting to save for the education of a child or are we looking to see what investment goals need to be satisfied so we can take an early retirement?

The major problem with disclosure in the past was that the average outside user of the financial statements - ie the investor - never had available enough information with which to make such an analysis.

What SOX Section 409 is trying to accomplish is making available relevant, timely information that we can use to draw our own conclusion on the soundness of an investment using our personal criteria as a benchmark.

My next articles on corporate governance and disclosure issues will expand upon this topic.