The US law aiming to safeguard the credibility of corporate accounts is expected to lead to increase...
The US law aiming to safeguard the credibility of corporate accounts is expected to lead to increased short-term volatility in the markets.
In the long-term, however, fund managers at Aberdeen and New Star believe the Public Company Accounting Reform and Investor Protection Act of 2002 could go a long way to restoring investor confidence in the US.
The Act, which is introduced on 14 August, requires the chief executives and chief financial officers of all US companies with revenues in excess of $1.2bn to personally swear an oath that they believe their company's financial statements to be correct. Those later discovered to have lied will be liable to civil and criminal proceedings.
Tim Steer, manager of New Star's UK Aggressive fund, believes the measure will help restore investor confidence and create a platform for markets to stabilise.
Other fund managers have warned the measure, introduced to restore confidence following the Enron and WorldCom scandals, will lead to increased short-term volatility as speculation and rumours abound heading toward the Act's introduction.
Rupert Della Porta, US fund manager at Aberdeen Asset Management, said over the last four years, corporate profits as measured by the US National Income Accounting Register have become increasingly divorced from those reported to Wall Street.
Della Porta noted: 'The market is looking for the next accounting scandal and punishing it severely. As we get close to 14 August, there will be opportunities to pick up quality companies, whose names have been unfairly besmirched, cheaply.'
He added companies are finding it difficult to get new chief executives and many were now sending in teams of accountants to assess a company before joining it.