Compliance Blog

So, how would you grade the results associated with the Sarbanes-Oxley Act passed by President Bush on July 30, 2002?

It all depends on your perspective.

Here is how the grades might pan out depending on what type of stakeholder you are:

1. Investors - "B+" - SOX was created to help rebuild confidence in financial reporting and transparency. SOX has succeeded in this regard. Large investors such as Calpers are strong proponents of improved reporting and transparency. Investors in smaller companies don't like the costs of SOX 404 (Management's Report on Internal Controls) on smaller companies. Overall the stock markets are up significantly from July 2002. SOX is a contributing factor to the markets success as without SOX larger investors might have balked at financial information and assumed a larger risk premium and therefore greater cost of capital for all market participants. Investors like CEOs and CFOs to certify their companies' financial results and provide solid controls. It is all part of earning that big executive pay check.
2. Management teams of Publicly Traded Firms - "C-" - Management teams have long complained that they are spending too much time on compliance initiatives, and not enough on strategic management. While the furor has died down with larger filers, smaller filers continue to complain. Some management teams admit that financial reporting has improved, but don't feel that the cost justifies the benefits.
3. Public Accounting/Consulting Firms with SOX Consulting Practices - "A" - SOX has provided a service and revenue bonanza for firms providing SOX services, particularly those services associated with SOX 404. The demise of Enron and Arthur Andersen has created unprecedented wealth creation for public accounting firms and accounting grads.
4. U.S. Exchanges and U.S. Competitiveness Proponents - "C" - While it is acknowledged that investor confidence has been restored since its nadir in 2001/2002, it is widely felt that the U.S. markets are setting the compliance high bar too high and are thus losing new listings to exchanges such as LSE-AIM, Hong Kong, etc. Time will tell whether the "flexible compliance regimes" of these offshore markets will protect investor interest and market capitalization.
5. Foreign Markets - "A+" - Markets such as the LSE-AIM and others love SOX because they feel that is it driving many listings their way that otherwise might look at listing in the U.S.. Fewer rules and lower market access costs are attractive to many firms, but they tend to achieve lower market valuations in comparison to similar firms listed in the U.S.. Are shareholders okay with this? Perhaps theses listings will ultimately move on to U.S. exchanges to achieve higher market caps.

So, everyone has their perspective. In implementing SOX, the U.S. took a leadership position to ensure improved investor confidence. This mission is ongoing but stands in very good shape. The larger concern is now how to achieve cost-effective compliance and enhance competitiveness. No doubt this challenge can be met now that the market is resting on a strong controls and transparency foundation.

To help your firm achieve cost-effective SOX 404 compliance please go to www.issuescentral.com to learn more about the Compliance Playbook(TM).

If you are a Canadian-based filer, please go to our exclusive Canadian distributor's (Thomson-Carswell) website www.compliancepartner.ca to learn more about achieving SOX 404 or MI 52-109 compliance with Compliance Partner(TM).