Washington (Sept. 10, 2003) -- Despite complaints from some business groups that the Sarbanes Oxley accounting reforms have put a chill on entrepreneurial activity, Securities and Exchange Commission Chairman William H. Donaldson told Congress Tuesday that corporate America is warming up to the tougher new financial reporting standards stemming from SOX.
During “my discussions with company officials, countless people have told me that America cannot afford a return to the lax standards that preceded Sarbanes-Oxley,” he said in testimony to the Senate Banking Committee. “Many have added that while they initially questioned the merits of the Act, they now see that it can help show the way to a brighter, more competitive era in American business.”
Donaldson’s testimony came during the opening round in a series of upcoming congressional hearings into the effectiveness of SOX, and whether the costs of complying with the year-old accounting reforms are discouraging entrepreneurial activity.
Even staunch supporters of the Act acknowledge that the new regulatory burdens associated with Sarbanes-Oxley have put pressure on the business sector. During the hearing, Sen. Charles Schumer D-N.Y., pointedly asked Donaldson whether he worried about “a decline in the entrepreneurial vigor” of U.S. corporations because of the new accounting rules.
Donaldson said that while “there have been suggestions” that tougher enforcement of the financial reporting rules may “have discouraged honest risk-taking,” he called on corporate leaders not to use “Sarbanes-Oxley as an excuse for putting off innovation and investment.”
Nothing in the law, “its implementation or in the Commission’s agenda should make business fearful,” Donaldson told the Committee.
“I believe the Act and the other steps that have accompanied it will lead to an environment where honest business and honest risk-taking will be encouraged and rewarded,” he said. “What should be discouraged, and what we are committed to stamp out, are the activities that some have sought to disguise as honest business but that, in reality, are no such thing.”
One factor that may be working against efforts to improve financial reporting, however, is the increased concentration of the accounting industry. Responding to questioning from Sen. Christopher Dodd (D-CT), Donaldson conceded that fewer accounting firms will result in less competition for audit services.
“The challenges facing the accounting industry are considerable,” he told the Senate. There are “tremendous competitive issues” facing the profession, and “the fact that we have only four major accounting firms is a concern.”
-- Ken Rankin
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