A Deserved Reputation?By Reuters - | Posted 2008-03-29 Email Print
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With market turmoil and the subprime mess, the push to ratchet down Sarbanes-Oxley compliance and costs have simmered down. Will the compliance push get even louder now from Washington?
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)
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