If corporate accountants got the chance to blow out the candles on the Sarbanes-Oxley birthday cake, they'd probably wish the birthday boy would go away.

Investors, on the other hand, would probably applaud and call for many happy returns.

The Sarbanes-Oxley Act has been around for three years now, and, according to many of the professionals who have to meet its requirements, that's about three years too many.

Jeffrey Flecker Sr., vice president and corporate controller of Qualcomm, praised the intent of the Sarbanes-Oxley Act, saying that it validated his company's beliefs and behavior. In other words, in his opinion, Qualcomm was meeting the spirit of the law before it was even written. But once it was written, the law became an unnecessary burden.

"In my opinion, SOX 404 has not established a reasonable or practical solution," Flecker explained. "The cost and efforts have been extreme for all businesses, and it has placed a disproportionate burden on certain smaller companies. In addition, SOX Section 404 has created a culture where it is assumed that no one can be trusted, which is very unsettling and unfortunate."

That sentiment has echoed throughout corporate finance and accounting departments across the country.

Paul Sharman, president and chief executive officer of the Institute of Management Accountants, agreed that SOX has done little more than make life more difficult for the preparers of financial statements. "Sarbanes-Oxley has distracted management from the business of doing business and focused them on documentation, satisfying additional layers of regulation, and that has caused a transfer of energy away from business and profits away from shareholders," he said during an IMA press conference. "Approximately $32 billion has been transferred out of shareholders' pockets and into the pockets of auditors."

Sharman added that SOX, combined with overly complex accounting standards, was making U.S. businesses less competitive in a global economy where companies in other countries are free from excessive regulation.

Sharman said that SOX fails because its main objective is to audit work that has already been performed, whereas it would be more effective to "ensure that companies design, implement and manage proper internal controls, resulting in sustainable quality built from inside the company." (For more on the IMA, see "The IMA redefining itself," page 14.)

The Securities and Exchange Commission declined to comment on the specific question of the state of SOX, but in a recent speech in Washington, commissioner and acting chair Cynthia A. Glassman noted some of the strengths and failures of SOX Section 404, which holds top executives responsible for their company's internal controls.

"There is no question in my mind that the implementation [of SOX Section 404] has been misdirected," Glassman said. "What was meant to be a top-down, risk-focused management exercise became a bottom-up, 'check the box,' auditor-driven exercise."

Glassman praised the law's success in getting companies to improve internal controls and corporate governance, but she questioned the cost of compliance and the tendency of auditors to require "absolute assurance" when "reasonable assurance" would suffice.

A recent study by Financial Executives International of 217 publicly traded companies found that the average cost of compliance was roughly $4.4 million. Meanwhile, a survey conducted by the Big Four said that 90 percent of their publicly traded clients spend nearly $8 million on SOX Section 404 compliance.

In a speech before the Securities Industry Association, SEC commissioner Paul S. Atkins, speaking for himself rather than for the commission, also cited the benefits of Section 404, but questioned some of the inadvertent problems.

"I fear that in the current environment, many executives feel as if they aren't working hand in hand, but are actually in hand-to-hand combat with their auditors as they go through the 404 process!" Atkins said.

He went on to say that "there is enough blame to go around," and stated that corporate executives and audit firms were, in many cases, being too conservative in exercising judgment.

The Financial Accounting Standards Board and the Public Company Accounting Oversight Board have also declined to comment on how effective Sarbanes-Oxley has been. Rep. Christopher Cox, R-Calif., whom the White House nominated for the SEC chairmanship, is making no public comments on anything related to business, accounting or the securities markets.

Among government leaders who weighed in with praise was U.S. Comptroller General David M. Walker. "Sarbanes-Oxley has led to significant changes in the role of the audit committee and in the emphasis on internal control over corporate financial reporting and disclosures," he said. "The positives associated with increased investor protection clearly outweigh any related concerns. However, based on experience gained in the first year of implementation, some implementation changes will be necessary in order to assure that management reviews of internal control and related audit work are focused on key risks, pass a cost/benefit test, and are sustainable."

Investors and analysts also hold SOX's accomplishments in high regard.

"To investors, Sarbanes-Oxley is the most important financial market legislation in the last 70 years," said Rebecca McEnally, vice president of advocacy at the CFA Institute, which works in the interest of investors. "It requires corporate managers to institute strong governance reforms, directors to oversee these reforms on behalf of investors, and managers to assume responsibility for the accuracy of the financial information they provide to investors. This is a monumental shift. It does not mean that investors will never again be deceived by those to whom they have entrusted their wealth. However, if it does occur, investors will have both the basis and the means for redress. The rules of the game have changed, and for the better."

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