Click here for a Forbes article by Harvey Pitt on Sarbanes-Oxley. Pitt was chairman of the SEC during the passage of SOX.
The article is balanced. Pitt points out some benefits of SOX:
The 2005 Oversight Systems Financial Executive Report on S-Ox surveyed more than 200 financial executives and found a significant majority believe that, after implementing requirements to remedy control deficiencies, they have seen bottom-line business benefits. Nearly half said S-Ox compliance resulted in reduced risk of fraud and errors, and they now have more efficient operations. In a 2005 Ernst & Young survey, 87% of respondents noted enhanced accountability and ownership of controls as areas of added value provided by S-Ox.
He then points out some costs of SOX:
AMR Research estimates that companies will spend $6 billion to comply with S-Ox in 2006, on a par with the amount spent in 2005. Corporate executives have railed against the excessive costs of implementing S-Ox, threatening delisting, abandonment of America for Europe, and the end of America’s capital markets.
Of particular concern is that S-Ox imposes disproportionate burdens on small and foreign companies. Despite SEC importuning, Congress refused to allow the SEC to make distinctions based on a company’s size or nationality. As a result, the SEC has wisely delayed implementation of internal-controls requirements for companies with market caps of less than $75 million and companies that are based abroad.
To reduce SOX 404 compliance costs, he suggests that the â€œmaterial weaknessâ€? standard be abandoned for a probability-based definition.
He concludes as follows:
S-Ox is here to stay, as are the myriad rules the SEC has adopted to implement it. Moreover, companies that make sensible efforts to comply will be better run, and will provide better investments for investors. Equally important, there is evidence that public confidence is slowly being restored.
As an aside, why canâ€™t we settle on the short name for Sarbanes-Oxley? I prefer SOX. Pitt uses S-Ox. Others go with Sarbox. I think someone should write a law review article on this.