The answer depends on whom you ask

Edward I. Koch, one of New York’s most colorful mayors, used to regularly poll his constituency with the simple question, “How’m I doin’?”

And by and large he received honest answers. Now, whether he reacted well to criticism is a discussion for another time.

However, last month, during a Sarbanes-Oxley-themed conference - which included the inaugural speech before the profession of Public Company Accounting Oversight Board Chairman William McDonough - I wondered how the most oft-used hyphenate in the history of the accounting profession, was, well, doing?

Like anything else, I guess, it depends on whom you ask.

Securities and Exchange Commission Chairman William Donaldson is of the opinion that corporate America is warming up, albeit gradually, to the law’s tougher financial reporting standards.

In testimony before the Senate Banking Committee, Donaldson said in traditional Beltway boilerplate that, although the merits of Sarbanes-Oxley fell under heavy scrutiny, company officials “now see that it can lead to a brighter, more competitive era in American business.”

Again, depends on whom you ask.

Corporate executives have complained that the cost of compliance is forcing a decline in “entrepreneurial vigor” due to the new rules.

Donaldson admitted that tougher enforcement may have been a factor in discouraging what he calls “honest risk-taking,” but dismissed that basically as a feeble excuse for deferring innovation and investment.

Okay, as the head of a regulatory agency, you would probably expect Donaldson to deliver commentary along those lines.

But an executive from a Big Four firm that audits hundreds of public companies and peddles non-audit services might be a different matter.

Yet James H. Quigley, head of Deloitte & Touche, unabashedly called Sarbanes-Oxley, “The best thing that ever happened to us.”

In a speech at the National Press Club, Quigley said that the sweeping reform legislation is positively affecting audit committees - forcing them to meet more frequently on internal controls.

Now, that may make a great sound bite for Nightly Business Report or a great pull quote in the financial section of a newspaper. But I’m having this teensy problem believing that any Big Four executive would trumpet the Sarbanes-Oxley legislation, which basically puts their firms under a regulatory microscope. In fact, I can bet there has been more than one heated discussion on the subject at each of the Big Four firms, and probably those just below that level, as well.

Quigley’s assessment of the effectiveness of Sarbanes-Oxley was predicated on a Deloitte survey that polled a total of 66 companies. Of that grouping, the number of audit committees meeting more than six times annually increased to 39 companies from 11.

But unlike Donaldson, Quigley added a caveat - throwing a caution flag against further legislation until the ramifications of Sarbanes-Oxley are fully understood.

Despite his positive take, Quigley cautioned against further corporate governance legislation until the effects of the Sarbanes-Oxley Act are fully known: “Now is the time to resist the clamor for new regulations.”

The bill places a higher compliance (and therefore cost) burden on those firms, and they have the pleasure of being scoped by the PCAOB on an annual basis since their public audit client roster tops 100. Deloitte audits roughly 1,500 SEC clients.

Couple that with the fact that Deloitte is the only Big Four firm not to jettison its consulting unit, which sort of goes against the spirit of the reform bill, not to mention requiring a high-wire act between compliance and audit independence.

How’s Sarbanes-Oxley doing? An accurate barometer might be to poll the heads of various-sized CPA firms - and away from the glare of the media.

Bill Carlino

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