Sarbanes-Oxley Rules Get Reprieve in Subprime Mess - A Deserved Reputation? (
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A DESERVED REPUTATION?
Many of Wall Street's previous complaints about Sarbanes-Oxley were
rooted in the idea that it was "crisis legislation," said University of
Tennessee law professor Joan Heminway, and did not get a thorough
cost-benefit analysis.
Congress passed the corporate reform law followed a wave of
book-cooking scandals capped by the 2001 collapse of former energy
trader Enron. Lawmakers believed stricter disclosures would help
restore investor confidence in the markets.
Company costs to comply with Sarbanes-Oxley were expected by
lawmakers to drop significantly after the first year or two. But during
the third year the law was in force for large companies, the average
cost of complying with Section 404 was $2.9 million, according to
Financial Executives International.
Business groups have repeatedly attacked Section 404 as costly,
invasive and offering few tangible improvements to financial statements.
The U.S. Securities and Exchange Commission conceded this point to
some extent. In July, the SEC relaxed the provision, saying companies
and auditors could take a narrower approach to comply with Section 404
by focusing only on the riskiest internal controls.
In February, the SEC also proposed to delay for the fifth time the deadline for small companies to comply.
In light of the current suspicion that some banks, mortgage lenders
and other companies failed to properly manage subprime-linked
valuations on their books, there is little likelihood that
Sarbanes-Oxley will be weakened.
"The typical political answer is to ratchet up regulation," Bainbridge said.
SEC enforcement director Linda Thomsen said heightened regulatory
responses after market crises have had positive effects, namely
increased corporate governance.
"There has been an accumulation of events, including Sarbanes-Oxley,
that have led us to a place where boards are pretty well engaged,"
Thomsen said on the sidelines of the Chamber event.
(Reporting by Karey Wutkowski, editing by Gerald E. McCormick)
© Reuters 2008 All rights reserved
A DESERVED REPUTATION?
Many of Wall Street's previous complaints about Sarbanes-Oxley were
rooted in the idea that it was "crisis legislation," said University of
Tennessee law professor Joan Heminway, and did not get a thorough
cost-benefit analysis.
Congress passed the corporate reform law followed a wave of
book-cooking scandals capped by the 2001 collapse of former energy
trader Enron. Lawmakers believed stricter disclosures would help
restore investor confidence in the markets.
Company costs to comply with Sarbanes-Oxley were expected by
lawmakers to drop significantly after the first year or two. But during
the third year the law was in force for large companies, the average
cost of complying with Section 404 was $2.9 million, according to
Financial Executives International.
Business groups have repeatedly attacked Section 404 as costly,
invasive and offering few tangible improvements to financial statements.
The U.S. Securities and Exchange Commission conceded this point to
some extent. In July, the SEC relaxed the provision, saying companies
and auditors could take a narrower approach to comply with Section 404
by focusing only on the riskiest internal controls.
In February, the SEC also proposed to delay for the fifth time the deadline for small companies to comply.
In light of the current suspicion that some banks, mortgage lenders
and other companies failed to properly manage subprime-linked
valuations on their books, there is little likelihood that
Sarbanes-Oxley will be weakened.
"The typical political answer is to ratchet up regulation," Bainbridge said.
SEC enforcement director Linda Thomsen said heightened regulatory
responses after market crises have had positive effects, namely
increased corporate governance.
"There has been an accumulation of events, including Sarbanes-Oxley,
that have led us to a place where boards are pretty well engaged,"
Thomsen said on the sidelines of the Chamber event.
(Reporting by Karey Wutkowski, editing by Gerald E. McCormick)
© Reuters 2008 All rights reserved
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