Throughout much of my adult life, I’ve never been known for an impeccable sense of timing.
I once sent an engaged friend a gift certificate to a chic bistro as a celebration of his pending nuptials, the very day he walked in on his fiancée au natural with his soon-to-be-ex-best man.
I gave another long-time acquaintance from college a leather briefcase in anticipation of his making partner at a law firm, exactly one day before he was told by his immediate superior that his career would be best served elsewhere.
As unsynchronized as those moments were, they pale in comparison to what’s going on at the U.S. Court of Appeals as it prepares to rule on whether the Public Company Accounting Oversight Board, which was born as a result of Sarbanes-Oxley is, “constitutional.”
At a time when we’ve witnessed the implosion of the subprime mortgage industry, the near-collapse of Fannie Mae and Freddie Mac, and plunging financial markets that have transformed millions of 401(k)s into 201(k)s, we await a ruling that could potentially eradicate the sorely needed investor protection barriers that have taken roughly six years to build.
Stop me if you’ve read or heard this before because you most likely have.
This legal insanity began years ago when Beckstead & Watts LLP of Henderson, Nev., filed suit challenging the constitutionality of the PCAOB and, by proxy, the Sarbanes-Oxley Act. The case was based on the argument that the president should appoint the members of the PCAOB, because the private-sector entity functions as part of the government, as opposed to being part of its direct report — the Securities and Exchange Commission.
In 2005 the firm received an inspection report from the PCAOB, which examined some 16 of B&W's 61 audit clients - comprising largely micro-cap companies — and identified audit deficiencies in half of them.
The firm was later joined in the legal fray by a number of Washington think tanks including the Competitive Enterprise Institute.
But as I’d written then as I’ll do now, the ulterior motive fueling this litigation was, to no one’s surprise, a strategy to pare down SOX itself.
In a 14-page ruling a district judge rejected the suit and predictably, the case wended its way through the appeals process where it currently resides.
Just last week the publication, Compliance Week, released the results of a study showing that external audit fees are beginning to level off and in some cases decline for large-cap companies since SOX went into effect.
Audit fees paid in 2007 by S&P 500 companies with more than $1 billion in annual revenue found only a 3.2 percent median increase over their 2006 audit costs. The prior year had witnessed an average increase of 4.4 percent.
To dilute investor safeguards in this current economic climate would be a disastrous step back in helping restore an already shaky public confidence, not to mention putting a legal imprimatur on careless auditing and financial reporting.
Experience has taught me – often painfully — that bad timing is never a good thing.
That applies exponentially when money is involved.
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