Get Used to Sarbanes Oxley

Lately, there has been an increasing chorus of complaints from executives with regard to the Sarbanes Oxley Act and the stringent internal control provisions in Section 404.  Managers and politicians alike have suggested that the law unfairly saddles them with the costs of maintaining adequate controls in order to comply with the law. 

My take?  STOP WHINING!

Right now, this law is pretty much the only thing investors have standing between them and unscrupulous corporate managers who have proven time and again that they have no problem looting corporations and misstating financial statements to enrich themselves.  Now I am all for the free market, but sometimes, laws such as SOX or the Sherman Anti Trust Act are necessary to maintain a free but FAIR economy.  SOX also gives us accountants the opportunity to ensure that controls exist to protect shareholders and not benefit managers.

Don’t agree with me?  Leave your short but sweet counterarguments here.

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4 Responses to Get Used to Sarbanes Oxley

  1. Pingback: Get Used to Sarbanes Oxley « The Anonymous Accountant

  2. Edmund Murphy says:

    I agree in principle with the concept of investor protection – I own stocks myself and manage my family investment portfolio. Obviously, there were gaps in this protection, as shown by the Enron and Worldcom scandals. However, there is the issue of cost/benefit to consider. SOX was passed very quickly in the US Congress after the abovementioned scandals; I wonder if the politicians were over-reacting in response to public outrage at the time. They may have felt that they had to pass a very strict law to show they were on top of the situation. It could be that some parts of SOX are needed to protect investors, but other parts add to the company’s operating expense without any value added. Again, as an investor, I want laws to protect my investment. But these protections cost money, which comes out of my pocket at the end of the day. I don’t want to pay for excessive protection that I don’t need.

    It is interesting that Canadian regulators have adapted some but not all of SOX. Maybe this is a smart move – the regulators look at how SOX is working in the States, and adapt only the parts of SOX that appear to be cost-effective.

  3. audit says:

    I agree with that assessment, however, as an auditor, I can tell you that some of the things that companies complain about, mainly the myriad of tests of internal controls that are now needed, are absolutely necessary. If you look at what happened to Enron, while it is true that the special purpose entities bankrupted them, it was actually their totally inadequate internal control over cash that left them in a situation where they could not pay their short term liabilities and had to declare bankruptcy. So while the cost of these protections is high, and the cost should be mitigated somewhat for the smallest cap companies (although, I would argue that these are the companies most likely to fudge the numbers), this law is quite necessary. I do agree with you that it needs to be refined, but the spirit must be kept.

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