Has SOX Been Successful?

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Sometimes overlooked in the debate about SOX are the contributions it has made in generating a greater focus on improved corporate governance and stronger ethics and compliance programs. Needed improvement in audit quality is a continuing concern.

The Sarbanes-Oxley Act (SOX) of 2002 was enacted following a series of failures involving various functions designed to protect the interests of the investing public. Containing several highly controversial provisions, SOX created a total revision of the regulatory framework for the public accounting and auditing profession and provided guidance for strengthened corporate governance. It was considered to be the most far-reaching legislation affecting public corporations and their independent auditors since the 1930s.

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Interesting
article. However, it doesn't deal with the 800-pound elephant in the elevator:
How can auditors be independent if they are paid by the companies they are
auditing? Can one be paid to be independent? SOX did not deal with this issue, our
profession refuses to even acknowledge the issue, and yet tackling it honestly
is the only way to reform the systemic problems facing the auditing industry.

First, why should the audit be a state-granted monopoly? Open it up and
let the free market innovate new solutions to attesting to the financial
performance and risk position of companies. The goal is to protect the public,
and there are myriad ways of accomplishing this objective, we don’t have to
suffer with a one-size-fits-all monopoly offering.

Insurance companies and banks could innovate new products, the stock
markets could also enter the fray, by hiring the auditors and thereby remove
the major conflict of interest.

Second, Sarbanes-Oxley. It is past time this overwrought piece of
regulation was challenged, since it was passed in haste, and its costs have far
exceeded its meager benefits, despite the claims made in the article. Not only
would SOX not have prevented Enron, WorldCom, etc., it punishes the very people
it is designed to protect—shareholders—by imposing regulatory burdens that
reduce profitability and stock values. Further, it rewarded, with over $1
billion worth of regulatory revenue, the very profession—auditors—that played a
part in the failure of Enron, etc.

Without doubt, After
Enron: Lessons for Public Policy, is the best book written so far on
why Enron happened and the public policy implications for this and other
accounting scandals.

The editor, the late William Niskanen, was a former acting chairman of
President Reagan’s Council of Economics advisor and was chairman at the Cato
Institute since 1985.

This book is the only one I’ve read that offers meaningful ideas on
accounting and auditing reforms, such as the innovative idea of having the
stock exchanges select which accounting standards its companies should be
required to follow, as well as paying the auditors itself in order to remove
the ultimate conflict that exists between auditors and their clients––the fact
they are being paid by the very companies they are hired to audit. This would
force competition into the promulgation of accounting standards as different
exchanges would select different standards, a salutary idea.

This book is very deep, grounded in solid economic theory, and,
unfortunately––but not surprising––I’ve never seen anyone in the mainstream
accounting press mention any of the ideas it contains.

For true accounting and auditing reform, we must
look to the think tanks, not the universities, government, or the regulatory
sector.

Nothing focuses an individual, a
company, or an industry like unregulated competition. Let us begin to innovate
and create a better tomorrow by offering a new financial reporting model to the
public and throw off the shackles of a regulated attest monopoly, and put
ourselves to the ultimate test––providing value in a free, unfettered
marketplace, while serving the interests of the public we are privileged to
protect.

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Www.soxlawcontrols.com - see a good website on SOX

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