I just came through an internal SOX audit, so this is of special interest to me.
Accounting Cleanup Board Is Facing a Gutting: Jane Bryant Quinn
Commentary by Jane Bryant Quinn
July 16 (Bloomberg) -- Just when you thought that the drive toward better financial accounting couldn't be stopped, a stick may be shoved into the spokes. A decision expected soon from a federal court might throw the Sarbanes-Oxley Act into limbo. The law, also known as SOX, is essential to the movement for accurate and honest corporate reports. Congress would rescue SOX but perhaps with its beating heart cut out.
I would have a lot to say about Sarbanes-Oxley in general and not all of it good, but reading that the act may be tossed exactly when we are on shaky ground economy wise is unsettling at best.
As with much of life, perception is a major factor; we see it every day in the Avian Influenza – Severe Pandemic arena. Public confidence is suffering, perceptions are beginning to cause the very thing many are worried over – we are talking ourselves right into a major economic pullback. It would be a major blow to public confidence to suddenly read that oversight and governance will soon be back to the bad ol' days.
I believe the market would not allow a return to "creative accounting", having been stung in a major way already (Enron to name but one), but if the public has no confidence in a company's financial reports, well, perception is a major factor.
SOX had major ramifications for publicly traded companies, not the least of which is the tremendous overhead accreted onto the cost of doing business to maintain and ensure compliance. It's no fun – at all – and it's expensive. But part of the cost of doing business is that the public has confidence in your business, and when you are publicly traded you also have to strive for investor confidence.
It's one [bad] thing to damage your own business due to sloppy [or criminal] accounting, we can point our fingers at people and learn [perhaps] from their errors of omission/commission, but it's an entirely different matter to have your business damaged through no fault of your company or its officers.
Rein in SOX – YES! Toss it out? NO! We are in need of sanity over what is and what isn't prudent and proper to ensure integrity of reported numbers; requiring two sets of copies of check receipts, held by two different people, duly signed and dated, doesn't quite fit those parameters (in my opinion of course).
SOX – otherwise known as the Full Employment for Accountants Act – is a shame and a classic example of the Law of Unintended Consequences, but we can never go back to the days prior to strict regulation of compliance. Public confidence will not allow it. And we need all the public confidence we can get right about now.