More than three years after it's original passage, but still in the infancy of its implementation, the Sarbanes-Oxley Act is facing attacks on a number of fronts.

In med-February a roster of all-stars from the financial world stepped up to defend the legislation, writing a letter to federal regulators and asking that no public company be exempted from the internal controls provisions of the Sarbanes-Oxley Act.

That letter was addressed to current Securities and Exchange Commission Chairman Christopher Cox and the acting chairman of the Public Company Accounting Oversight Board, William Gradison. The communication contained strong words cautioning against an SEC advisory panel's December recommendation to change SOX provisions and exempt an estimated 80 percent of public companies from at least part of the rules.

When the bill became law more than 40 months ago, there were no illusions about what the legislation meant or the lofty provisions it contained -- and it was still passed overwhelmingly by both Houses of Congress, approved by a measure of 99 to 0 in the Senate and 423 to 3 in the House . In fact, if anything, there were cries that the bill had been watered down to a version that didn't go far enough in attempting to curb corporate fraud.

Signing the bill in July 2002, President Bush described it as including "the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt."

What's really changed since then? Looking back to that summer, there was one major political catalyst as both Houses worked to sort out the differences between the approved bills brought by sponsors Senator Paul Sarbanes (D-Maryland) and Rep. Michael Oxley (R-Ohio). That same week, WorldCom Inc. imploded in the latest and largest of the corporate scandals, admitting that it had overstated earnings by nearly $4 billion in just five quarters.

As the financial five -- which included f ormer SEC Chairman Arthur Levitt and former Federal Reserve Chairman Paul Volcker -- wrote in their Feb. 13 letter, "When new accounting and corporate-fraud scandals develop, as they surely will, people will ask who was responsible for a policy decision resulting in such sweeping exemptions."

They later added, "[In passing SOX], Congress adopted a reasonable approach to achieve real reform, not just the appearance of reform. It would be unfortunate now if the SEC and PCAOB undercut the effectiveness of congressional legislation through misguided regulatory action."

With SOX facing battles from within its own regulatory bodies, never mind a legal challenge questioning the constitutionality of the PCAOB's make up, it's no surprise to hear the voices of Levitt and Volcker being raised to protect SOX -- the legislation is inextricably tied to their own legacy. I wonder how much longer before the voices of Congressmen Sarbanes and Oxley are heard from -- only the latter of the two men is seeking reelection.

Like most things originating out of Washington, SOX always seems to come back to politics; in defending the justification for persevering in the implementation of the law, it's easy to fall into the politically-charged rhetoric often saved to make the case for or against war.

But politicians and public opinion surely can't be as fickle as to have forgotten the very real financial disasters of 40 months ago, or the tipping point of fraud that lead to the birth of SOX and gave momentum to a call for real systematic reforms.

In a recent editorial, Levitt said there are four steps needed to tailor SOX, including:

  • Redefining what constitutes a small business;
  • Encouraging the software industry to create better and more reasonably-priced tools to deliver on SOX;
  • Reconfiguring the SEC to more readily provide assistance to small businesses; and,
  • Easing of some internal controls requirements in favor of increased enforcement.

In short, what SOX needs is fine-tuning. Not to be summarily scrapped before it's been given a chance to work.

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