On a muggy July day five years ago, President George W. Bush put his pen to the Sarbanes-Oxley Act, an expansive piece of corporate reform legislation designed to help restore investor confidence in a nation scarred by an apparently unending series of accounting scandals.The 11-section measure, which essentially changed the way public companies do business, ushered in a cascade of new reforms, service prohibitions and standards for public issuers, their boards and the CPA firms that audit them. It was the most deliberately invasive regulatory reform passed since the Roosevelt administration, touching nearly every aspect of the financial reporting process.

SOX was a hybrid of the Corporate and Auditing Accountability Responsibility and Transparency Act, or CAARTA, sponsored by Rep. Michael Oxley, R-Ohio, and Senate Bill 2673, authored by Senate Banking Committee Chairman Paul Sarbanes, D-Md.

The eventual combined version of the act passed 423-3 in the House and 99-0 in the Senate before landing on the president's desk on July 30, 2002.

It also mandated the creation of the Public Company Accounting Oversight Board, an entity to police the audit profession, ending its century-old practice of "self-regulation." It tossed Section 404 compliance into the laps of auditors and chief financial officers - inarguably the most hotly debated and, not incidentally, costly section of the legislation, which mandates the certification of a company's internal controls.

Five years after its passage into law, proponents of SOX say that the measure was not only necessary, but has been effective in helping whittle down the frequency of corporate wrongdoing. Meanwhile, critics maintain that SOX is an expensive and overreaching placebo that, because of its myriad regulations, has actually harmed the U.S. capital markets and discouraged investment.

Since SOX's passage, the Securities and Exchange Commission has granted several compliance extensions to smaller companies, while the legislation and the PCAOB have both survived a legal challenge to their constitutionality.

In addition, the PCAOB has voted to adopt Auditing Standard No. 5, superceding AS No. 2, which gives auditors more latitude to scale an audit depending on the size and complexity of the company, as well as encouraging more professional judgment by following a more principles-based approach.

As SOX celebrated its fifth anniversary, Accounting Today polled a number of regulators, practitioners, association heads and analysts to gauge their perspectives on both the effectiveness of the legislation and its future in the boardrooms of corporate America.

* Sen. Paul Sarbanes (ret.), co-author of Sarbanes-Oxley

"I think we've come a long way toward restoring investor confidence and transparency in financial reporting. There were a lot of egregious things going on before. But there are still elements in the business community that are recalcitrant. You hear a lot of criticism about the costs of 404. But the SEC and the PCAOB are making efforts to address that to get a balanced regime where you've achieved the purpose of 404. Yes, it was expensive at first, especially for companies that didn't have a good system and they needed to put one in place. I don't think it's harmed us internationally, either. For years we've encouraged other companies to create capital markets and now they're doing that. But that was happening before SOX."

* Rep. Michael Oxley (ret.), co-author of Sarbanes-Oxley, now with the law firm of Baker & Hostetler

"I'm happy with the general direction of the economy, and pleased with the law's contribution to that prosperity. While not perfect, it did help restore investor confidence, as well as increase corporate transparency and accountability in the areas of reporting and governance."

* Christopher Cox, chairman of the SEC

"With Sarbanes-Oxley, Congress gave the SEC important new authority and responsibility, including recovering money for injured investors and creating and maintaining independent auditing oversight. The law helped restore trust in U.S. markets after titanic scandals such as Enron and WorldCom rocked investor confidence. And by giving top executives more responsibility for their official filings and by accelerating insider transaction reporting, the law presciently helped put a stop to the scandal of stock options backdating. As a result, U.S. investors and the competitiveness of U.S. companies and financial services providers in the global capital markets all benefited."

* Mark Olson, chair of the PCAOB

"The Sarbanes-Oxley Act has been vital to the renewed investor confidence in financial reporting that we have seen over the past few years. High-quality financial disclosure by public companies is a cornerstone of U.S. capital markets and is necessary for the continued growth and competitiveness of the U.S. economy."

* Barry Melancon, president and CEO of the American Institute of CPAs

"SOX had one fundamental goal: to restore investor confidence. I think it has accomplished that, and the CPA profession can take some of the credit. The profession has worked tirelessly to make sure SOX has been implemented effectively. Public auditors today clearly have different expectations and demands as a consequence of SOX. I believe the profession has responded well. We as a profession have championed ways to balance oversight with the need to allow for professional judgment. More has to be done in this area, but recent changes to 404 point to progress."

* Ed Nusbaum, CEO of Grant Thornton

"Sarbanes-Oxley revolutionized financial reporting in the accounting profession. It changed the roles of the chief financial officers and the audit committees. There were some stumbling blocks with Section 404, but the PCAOB and the SEC are addressing that with a top-down, risk-based approach and putting an element of judgment back into it. The key point is that companies are reporting better numbers."

* Michael Cangemi, president and CEO of Financial Executives International

"FEI is very pleased with the progress SOX has enabled related to improved corporate governance, management and board involvement with internal control, and the integration of internal control into core business processes. Further, FEI surveys show continued reduction in the cost for management's assessment related to Section 404 implementation, and we are anticipating similar reductions in external audit charges."

* David Hardesty, vice president and partner at Wilson Markle Stuckey Hardesty & Bott, and a leading authority on Sarbanes-Oxley

"It appears that it's here to stay. Congress hasn't touched it. But my feeling is that it will take at least a generation of accountants to get 404 down. Neither the companies nor the accounting profession was ready for it in terms of training or business models. Auditors went at it with what they were used to using - checklists. What it really required was partners and senior managers to make difficult judgments. Change and training needs to come through a change of mindset in accounting education."

* Dennis Beresford, E&Y Executive Professor of Accounting at the J.M. Tull School of Accounting, Terry College of Business, University of Georgia, and former chair of the Financial Accounting Standards Board

"I think on balance it's been a good thing, for the accounting profession and the financial reporting community. I know there are those who think the costs are in excess of the benefits received, but the jury is still out on that. Now it's a question of whether we have the pendulum in the right place in terms of 404 costs."

* Harvey Pitt, former SEC chair and now CEO of Kalorama Partners

"I believe in the principles that SOX attempted to instill in corporate America and in the accounting profession. I believe that the overwhelming majority of business people want and intend to do the 'right thing.' That said, the 'right thing' is not always clearly defined and, as a result, ethical gray areas can lead to decisions that create problems. SOX and its aftermath, along with all of the prosecutions and SEC enforcement actions, re-inforced the tendency of corporate America to do the right thing and comply with good techniques and sound principles. And today we see the combination of individual responsibility and government oversight delivering investor benefits."

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