Is Sarbanes-Oxley Going Away Soon?

According to the anti-Sarbanes-Oxley crowd, SOX is a key factor behind the sorry state of the US economy. Today (Dec. 7, 2009), the US Supreme Court began to decide the constitutionality of the Sarbanes-Oxley Act, or SOX.

The Supreme Court heard oral arguments in the case of “Free Enterprise Fund v. Public Company Accounting Oversight Board”, a case considered by some the most important separation-of-powers case in some time.  The basic issue up for argument is whether the fact that the US President has no power to choose Public Company Accounting Oversight Board (PCAOB) members or exercise power over their operations renders SOX unconsitutional.

What’s behind the court challenge is, of course, money — or the lack of it. SOX compliance has reportedly driven up the cost of doing business for American public companies and, in turn, has affected small, private firms in a similar fashion. The cost of SOX has reportedly been much greater than anticipated; in the first three years of its existence, SOX cost US companies 25 times more than the $1.4 billion the SEC originally projected, according to Fox News.

SOX requires public companies to develop and implement effective systems of internal controls, as well as have full external audits conducted on an annual basis and require top management to attest that the numbers they report to shareholders are factual and have been verified.

It’s said that because of these and other requirements, SOX has acted as a barrier to expansion and access to capital, especially for domestic startups and growing companies.  Some companies considered moving their headquarters overseas or “going private” in response to SOX.  The number of US-based initial public offerings (IPOs) has dwindled in the last decade: In their best year this decade, the number of US IPOs was about 60% of the worst year in the 1990’s, according to one study.

Obviously, there are other factors at work here, but the Supreme Court is not considering any of them.  It is considering in the coming days if SOX runs counter to the US Constitution.

Should SOX be declared unconstitutional, it will not disappear right away.  Congress would have to rewrite the Act (and we do not look forward to this development, for the usual reasons).

What about you?  Regardless of where you’re headquartered, do you think SOX has generally been good or bad for business?  Is it a good idea that went awry in the execution?  Or, is it just a bad idea, period?  If it went away tomorrow, would that affect how you’re doing business?

I look forward to hearing from all of you.

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Posted on Monday, December 7th, 2009 under Accounting Procedures

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Originally published in 2009 by Bizmanualz, Inc. under the title Is Sarbanes-Oxley Going Away Soon?. All rights reserved. Reproduction permitted with attribution only. www.bizmanualz.com