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When Delphi (NYSE: DPH) filed its quarterly earnings report a couple of weeks ago, it marked the beginning of a new era. Not for the automotive parts supplier, but for the entire U.S. stock market. Delphi, you see, became the first company to file a report that was personally guaranteed by top management. (Unfortunately, it wasn't a money-back guarantee.) In the wake of the too-numerous-to-mention accounting scandals, the SEC has ordered that chief executives and finance officers of hundreds of large corporations vouch for the accuracy of their companies' filings and face personal liability for any wrongdoing. The officers must sign a statement of oath that says, among other things, that "no covered report contained an untrue statement of a material fact." In short, says SEC Chairman Harvey Pitt, "We are demanding that CEOs and CFOs swear that the numbers they've reported in their financial reports are correct and that they've left nothing important out." The requirement won't kick in until Aug. 14 for most of the companies, and some have not yet been able to abide by it. Thankfully, the SEC will soon be providing a list of which companies have and have not complied. In the meantime, you can read about the new policy on the agency's website. The overriding question here, of course, is whether this will serve as a deterrent to accounting fraud. It can only help. Before, CEOs and CFOs were protected from personal liability. Now, at the very least, they may be required to hand back gains from stock sales and bonuses in the period following false or misleading earnings reports. Bottom line: It's another positive step.
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