Several weeks ago, I warned that the overhaul of Sarbanes-Oxley was not going to please everyone and that the SOX-bashers would say the changes had not gone far enough and that they amounted to little more than a Band-Aid solution.
Sure enough, the conservative American Enterprise Institute is now saying it's not even the end of the beginning and that more needs to be done.
In a letter to the Financial Times, published on the AEI's website, AEI resident fellow Alex J. Pollock says the changes are little more than symbolic with "the official, public recognition that the wasteful expense generated by an act passed in political panic needs to be brought under control."
"Even an infinite number of accounting procedures and a vast library filled with three-ring binders full of risk control memoranda will not prevent cyclical recurrence of booms with their attendant frauds, and subsequent busts with their attendant scandals.
"Such devices can, however, certainly succeed at multiplying deadweight bureaucracy. So the reform of Sarbanes-Oxley, now just begun, must march on, cutting the bureaucracy and reducing the monopoly profits of the accounting firms that the act has so unfortunately engendered."
Pollock's sentiments are echoed by Professor Stephen Bainbridge who, in this piece from The Examiner, says it amounts to "much ado about little".
"American business is hemorrhaging and the SEC's solution is to slap a Band-Aid on the problem. What's needed here is surgery."
While some commentators had called on the Securities and Exchange Commission to permanently exempt smaller firms from Section 404 and consider making other SOX provisions less onerous, he said, the SEC could only provide guidance. And nothing else.
"Guidance does not create safe harbors by which compliant firms are insulated from liability. To the contrary, guidance is inevitably vague and ambiguous, leaving plenty of room for interpretation and disagreement. Conversely, determination of whether a particular firm has complied with its SOX obligations is highly fact-specific and contextual, such that mere guidance is unlikely to be determinative of whether the firm properly complied.
"Mere guidance will not change the incentives of corporate officers and directors. The Sarbanes-Oxley Act created significant new civil and even criminal liabilities for officers and directors whose firms have inadequate internal controls or improper financial disclosures.
"The best way for directors and officers to avoid these liability risks is to pump a lot of corporate resources into ensuring compliance with Section 404 and the rest of SOX. Because it is a corporation's directors and officers who control the purse strings, they get to decide just how much resources the corporation spends on SOX compliance. Because the money spent on compliance programs comes out of the corporation's bottom-line, however, the money comes out of the stockholders' pockets."
And with a federal judge now weighing up arguments about the constitutionality of the Public Company Accounting Oversight Board, one can only conclude that the SOX wars will continue to rage for some time with no clear end in sight.
no comment untill now