At TCS, Alex Pollock gets it exactly right:
Debates about the Sarbanes-Oxley Act continue, but one thing is clear: its implementation has created unintended consequences. As every Member of Congress knows from many constituents, it has caused a tremendously expensive amount of paperwork and bureaucracy. And the smaller the company, the greater the proportional burden that has been imposed.
Curiously, however, in today's W$J, James Quigley blithely opines that:
A Small Business Advisory Committee to the SEC recommended earlier this year that a majority of all public companies be exempted from at least a portion of these requirements, acting on a concern that the cost fell disproportionately on smaller issuers. Members of Congress have also proposed legislation with similar exemptions. The SEC has opted against such exemptions, instead announcing a plan to substantially expand guidance to issuers, and make other changes aimed at scaling implementation of these requirements for smaller issuers. Concurrently, the PCAOB announced a decision to revise a related audit standard.
... I believe that the SEC and PCAOB acted wisely, shifting the debate to a discussion of how to make the law work effectively for all companies and their investors. I believe that costs, which have steadily declined in the past two years, can be reduced further through SEC- and PCAOB-proposed measures.
How can Quigley take such a Panglossian view of the SEC's decision to throw the report of its own advisory committee into the circular file? Easy, he's the CEO of Deloitte & Touche USA LLP, one of the remaining big 4 accounting firms. SOX has been very good to accounting ... very good, indeed, as Pollock explains:
Sarbanes-Oxley implementation caused separate engagements and caused fees charged by accounting firms to soar dramatically. It thus caused a profit bonanza for the partners of accounting firms at the expense of corporate shareholders, who have absolutely no say in the matter.
At the same time as the public accounting firms have received this unintended, windfall enrichment, they have also become excessively risk-averse and reluctant to give professional advice to their clients on the application of America's complicated rules-based accounting standards.
So forgive me if I'm unwilling to take Mr. Quigley very seriously. Instead, I agree with Larry Ribstein:
Let?s face it: SOX, and the compliance industry, are a gigantic leech on the back of American industry. Quigley may be right that if we?re only patient we?ll get used to this leech as we have to all the others, including the 1933 Act. Industry grows around the leeches and adapts like the body of the hapless character in the Kafka story. But that doesn?t mean that we wouldn?t be better off if our blood was being put to more productive uses.
