Litigation

: The FRAUDfiles Blog

The end of Sarbanes-Oxley?

By Tracy Coenen (index)

Auditors and consultants around the country would like to string me up for my vocal dislike of Sarbanes-Oxley. I frequently moan that the cost is too high, the results are too poor, and consumers are fooled into thinking there’s been a solution to the fraud problem when there hasn’t.

But Sarbanes-Oxley consulting is a billion-dollar industry.A 2003 study indicated that the total annual cost of complying with Section 404 of Sarbanes Oxley was over $1 billion. An average company spent $1.7 million on SOX compliance last year.

Auditors and consultants aren’t stupid. That’s a cash cow for them, and they don’t want to lose it.

But The Corporate Counsel is reporting that Sarbanes-Oxley could go down the tubes based upon a pending decision in Free Enterprise v. PCAOB. The Race to the Bottom has a nice summary of some of the arguments in this case. Simply put, there are professionals who think this case could put the kabosh on PCAOB and Sarbanes-Oxley.

Professionals can argue that there have been some positive benefits from SOX, and I don’t disagree. For companies that decided to use it as a tool to improve controls, it has provided a benefit. But overall, I believe the cost has been too large and the benefits have been too small.

SOX was supposed to help protect investors in public companies. In many ways, I think it has done the opposite. Many investors have been taken off their guard, wrongly believing that SOX has been effective in reducing fraud. That’s simply not the case. I’ve yet to see any proof of a measurable decrease in corporate fraud since Sarbanes-Oxley was implemented. I’m willing to see what the world is like without SOX.

Thanks to Francine McKenna for the link to The Corporate Counsel.

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Full post as published by The FRAUDfiles Blog on July 08, 2008 (boomark / email).