Clarifying my Position on SOX

One of our loyal readers commented on my SOX story and got me thinking from his perspective, that of an investor. I agree with his 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 that SOX needs to be refined, but the spirit must be kept.

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3 Responses to Clarifying my Position on SOX

  1. Nah – don’t agree. It’s the insistence by companies on applying rules based accounting methods rather than the legal ‘substance over form’ (1969 tax case) that screws everything up for you Statesiders.

  2. Kim Hollaway says:

    It is nice to find accountant with a blog. I disagree with the notion that lack of I/C brought Enron down. It was bad decision making and bad investments (bad acquisitions, leaving core competencies, etc) that brought the company down. All SOX does is states whether you have adequate controls or not. Even if SOX had been in place, Enron would still have collapsed because its operations were bad.

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