Former Congressman Michael Oxley is unhappy with implementation of the corporate reform legislation that bears his name.
In an interview with CFO.com, he was asked, “Are you happy with the way Sarbanes-Oxley has been implemented?” His answer: “Not really. The law has gotten a lot of criticism.” He noted that the vast majority of the complaints center on Section 404, which requires an audit of internal controls over financial reporting.
“It was Auditing Standard No. 2, promulgated by the PCAOB (Public Company Accounting Oversight Board), that started all the problems,” he said. “It was two paragraphs long, but by the time the PCAOB was done, it was 330 pages of regulations. It was far too prescriptive and [more] expensive than anyone anticipated. So, [the PCAOB] and the Securities and Exchange Commission proposed a risk-based assessment to better define material weakness, with more emphasis on internal audit. It adds flexibility with smaller companies.”
Oxley told Business Week recently that Sarbanes-Oxley is flexible enough to allow the SEC and the PCAOB to make changes. Most of the costs have been associated with the external audit.
He said it's time to review the auditing standard “and wring out costs,” according to CFO.com.
The PCAOB and the SEC appear to agree that fixes are needed. According to the Wall Street Journal, PCAOB Chairman Mark Olson said at an April 4 SEC meeting that the board did anticipate making some changes to the auditing standard. However, he added, "It is premature to say how the board will act on a particular issue, nor to commit to any course of action."
Oxley, an Ohio Republican who retired earlier this year after 25 years in Congress, is now NASDAQ's nonexecutive vice-chairman, working to encourage companies to list on the exchange.
Oxley also discussed the benefits of the legislation, saying that it has not slowed growth. He told CFO.com: “It has provided a certain degree of comfort to the investing public and a confidence level in the investing public has been restored. Markets are more transparent. Accountability is built into the process."
“A lot of people overlook the requirement that insider deals must be reported in 48 hours. This provision is interesting in light of the backdating scandal. Virtually all cases took place before 2002. Before that, they had up to 90 days to report [stock trades]. I think the transparency will preclude nefarious activity. The statute does get credit for this.”