Law's anniversary sees change and challenges ahead
The landmark passage of Sarbanes-Oxley Act, last July, changed the landscape of the accounting profession.
As the sweeping reform legislation - written to curb the swelling tide of corporate scandals by mandating auditor rotation, limiting the scope of consulting services to audit clients and bolstering internal controls - recently celebrated its first anniversary, a number of high-profile accounting, political and legal professionals offered their feedback on the bill’s effects one year after President George W. Bush signed it into law.
● Sen. Paul Sarbanes, D-Md., chairman Senate Banking Committee and co-author.
“This was an absolutely essential step toward restoring the integrity of the securities markets and the confidence of investors.”
“Twelve months after its enactment, implementation of our legislation is moving us toward our goal of ensuring the integrity and accountability of market participants. In the boardrooms of our public companies, in the offices of their auditors, and in the exchanges, procedures are under careful and critical review.”
“Given the leadership now in place at both the Securities and Exchange Commission and the Public Company Accounting Oversight Board, I look forward to the act being implemented effectively.”
“Our legislation is designed to ensure that our markets will continue to be, as is often said, ‘the envy of the world.’”
● Rep. Michael Oxley, R-Ohio, chairman, House Committee on Financial Services, and co-author.
“The act raised the standard for corporate accountability by requiring chief executive officers to vouch for their financial statements, making boards more independent and empowering audit committees. A new oversight board was created for the accounting industry.
“Disclosure was enhanced, so that key managers can’t dump a falling stock ahead of the rank-and-file. Research analyst conflicts were ended. Jail terms were dramatically increased for white-collar crooks who cook books.
“By every account, corporate behavior has improved. CEOs of major companies have told me that their board meetings are longer and more detailed.”
● Arthur Levitt, former chairman, Securities and Exchange Commission.
“The message of Sarbanes-Oxley has been that it changed the culture of the boardroom. Part of that is out of respect and part of that has been out of fear. There also has been a shift in power from the management of a company to the board.
“However, I don’t think anyone understood the cost of compliance, as a very expensive battery of businesses has emerged - lawyers, advisors and consultants - but that will sort itself out as companies understand that compliance is common sense and not just a new series of rules and regulations.”
● Beth Brooke, global vice chair for strategy, Ernst & Young.
“Sarbanes-Oxley represents a wall between the past and now. I think we’re seeing the effects on the marketplace today. Audit committees are much more engaged and asking the right questions and the tough questions.
“Management has become much more engaged in their own financial reporting. If I’m an investor today, I’d think I’d feel better. We need to let this law work. The accounting fraud you’re seeing now is not because the law doesn’t work, but because it is working.”
● Mark Hildebrand, chief executive, Crowe Chizek and Co.
“Clearly it has made firms more aware of what’s going on with each client - and there’s much more detail in the process. It has also changed the sales channel, with the internal audit committee now having to approve everything.
“Over time, it will change the business design of a firm, the way firms go to market and the way they deliver. But we’ll have to see how it ultimately affects the small-to-midsized businesses.”
● Lou Grumet, executive director, New York State Society of CPAs.
“People are beginning to return to the basics, and that’s a healthy thing. You’re seeing less shortcuts because businesses are now thinking about the ethical implications of what they do - that’s why they go to a CPA in the first place. I also think that companies that employ CPAs as chief financial officers are holding them to a higher standard.”
● David Costello, president and chief executive, National Association of State Boards of Accountancy.
“As tough a pill as it has been to swallow, the net benefit of Sarbanes-Oxley has been good and positive for the profession. But there are still issues that have to be determined.
“What the state boards are going to do has not been decided, but we’re getting together for a uniform approach, which we will present to our members. Also what’s going to happen with standards for non-public companies?”
● Dennis Beresford, professor of accounting, University of Georgia, and former chairman, Financial Accounting Standards Board.
“There certainly has been more attention paid to corporate reporting than in the past, and corporate boards have become serious in getting financial expertise as part of their make-up. As an example, I’m currently serving on three boards. Some aspects probably still need to be fine-tuned, but that’s to be expected with any new legislation.”
● Ronald Hauben, partner, Bryan Cave, and former general counsel at PricewaterhouseCoopers.
“The recognition of audit quality was something that needed to be re-energized and recognized. I think if you asked a shareholder even two years ago who audited the company they invested in, they couldn’t tell you.
“The legislation has heightened the focus on internal controls. Sarbanes-Oxley has the greatest implications since the securities acts of 1933 and 1934. Accounting has gone from self-regulation to government regulation. And the long-term impact of that is just being felt.”
● Sen. Mike Enzi, R-Wyo., the only accountant in the Senate, helped draft the final version of SOx.
We have seen a change in the marketplace and in overall corporate governance. We also have witnessed the placement of independent directors and effective auditors who are now an integral component of corporate oversight. The passage of the Sarbanes-Oxley Act was but the starting point of returning regulatory control back to the Securities and Exchange Commission.
“The establishment of the Public Company Oversight Accounting Board has begun to make a difference in the auditing world. As Chairman [William] McDonough continues to bring the board up to speed, we will see the public company auditors providing financial accounting oversight on a much higher level.”
● Chuck Bowsher, comptroller general, 1981-1996, and former chairman, Public Oversight Board.
“Personally I think it’s first-rate legislation and on balance I’m very hopeful. It got off to a bad start and lost a good portion of the year with the poor leadership at the SEC under Harvey Pitt and [chief accountant] Herdman.
“They obviously didn’t want the bill to be implemented and their actions reflected that. But when the PCAOB named Bill McDonough and then Doug Carmichael I took encouragement that it was headed in the right direction. Down at the working level, they seem to be working hard at getting the Section 404 (internal controls). But I think it will be at least another year before we can truly tell how it’s doing.”
