MF Global could finally help SarbOx prove itself

MF Global could finally help the Sarbanes-Oxley Act prove itself. The reform inspired by Enron, WorldCom and other accounting scandals helped clean up U.S. company books, albeit at a cost. But approaching 10 years on, enforcers have filed few cases under the law. They could finally get their big chance if questions surrounding MF Global’s failure prove to have substance.

SarbOx has always drawn gripes. A 2009 survey by the U.S. Securities and Exchange Commission pegged the average company’s cost of complying with the 2002 law at $2.3 million a year. Some firms complained that it deterred them from going public and drove business overseas. More recent research, in contrast, credits it for better disclosure, fewer financial restatements and a lower cost of capital for companies.

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Tracking the Evolution of Sarbanes-Oxley Compliance

Has risk management ever been more of a dominant issue for organizations than it is today? A string of devastating natural and man-made disasters worldwide coupled with continuing aftereffects of a global financial crisis have placed companies in the spotlight of shareholders, governments and the public, all of whom want assurances that companies understand and are managing their risks effectively.

These issues are just the latest in a decade-long movement to enhance risk management in public companies, a trend that began in 2002 with the passage of the Sarbanes-Oxley Act (SOX). That legislation placed new requirements on companies to establish strong and sound internal control over financial reporting. Not only did it require management to report on the effectiveness of these controls, it also required attestation by the company's external auditor. For management and the board of directors at publicly held organizations, a new level of risk management and internal control was required to address financial reporting risk and remains so nine years later.

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China Wind Systems Appoints KRC to Develop a SOX 404 Compliance Program

China Wind Systems, Inc. (Nasdaq: CWS), ("China Wind Systems" or the "Company"), a leading supplier of forged products and industrial equipment to the wind power and other industries in China, today announced that on January 12, 2011, the Company engaged Shanghai KRC Business Consulting Co., Ltd. ("KRC") to assist the Company in preparing for the compliance of the internal control over financial reporting requirements of Article 404 of the Sarbanes-Oxley Act ("SOX 404").
KRC's SOX compliance service team will assist China Wind Systems to meet the requirements of SOX 404. KRC's blend of international experience and local knowledge provides the support and counseling to prepare a SOX 404 compliance program, evaluate and document new procedures for the Company's internal controls and make recommendations to manage SOX 404 compliance. KRC has assisted many companies listed in the U.S. in establishing and maintaining SOX 404 compliance programs.

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The S.E.C., Whistle-Blowers and Sarbanes-Oxley

The Dodd-Frank financial regulatory act makes that clear by requiring the Securities and Exchange Commission and Commodity Futures Trading Commission to pay at least 10 percent, and as much as 30 percent, of any monetary penalties over $1 million to those who provide “original information” about a violation of the law.

The financial overhaul measure requires the agencies to set up whistle-blower programs by early next year.

The S.E.C., led by Mary L. Schapiro, released its proposal last week. Unfortunately for businesses, the S.E.C. must comply with the Congressional directive that puts the interest of attracting tips about corporate wrongdoing ahead of the internal compliance programs that most corporations set up under the Sarbanes-Oxley Act, which passed eight years ago.

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Reforming Corporate America - How does the Sarbanes-Oxley Act impact American business?

How does the Sarbanes-Oxley Act impact American business?

The new law seeks to require greater accountability by management and boards in the reporting of financial data. Will it be enough?

The Sarbanes-Oxley Act, Congress' effort last July to respond to corporate scandals and to restore confidence in the stock markets, is off to such a rocky start that one is tempted to ask whether Congress will have to try again to accomplish significant reform.

A study of congressional response to an even worse period of market turmoil, the Crash of 1929 and the subsequent Great Depression, provides some interesting parallels that suggest the job may not yet be complete.

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Court Calls for Tighter Oversight of Accounting Board

The nation's highest court ordered a technical change Monday to the Sarbanes-Oxley accounting rules but left the broader law intact.

A government body that oversees accounting firms is structured in a way that's unconstitutional, the Supreme Court said. Under the 5-4 ruling, the Public Company Accounting Oversight Board can continue to operate with only minor changes.

The decision hands a victory to opponents of the 2002 corporate-governance law that created the panel, but it has little practical impact. Had the court ruled more broadly, it could have invalidated the accounting panel or even Sarbanes-Oxley itself.

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The Supreme Court: SOX and the supremes

THIS morning the United States Supreme Court produced a pleasingly narrow ruling on Sarbanes-Oxley.

The Free Enterprise Fund, a free-market pressure group, had filed a lawsuit claiming that SOX violates the Constitution's separation-of-powers mandate. The problem is that the legislation, passed in the wake of the Enron and WorldCom scandals, creates a body that regulates the accounting industry, the Public Company Accounting Oversight Board (PCAOB), but does not give the president power to appoint the members of the body.

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The Globalization of Governance

Especially in light of current economic challenges, the globalization of business is more crucial, and challenging, than ever.

Just as the U.S. and Europe have different accounting standards – GAAP and IFRS – their corporate governance standards differ widely as well. Corporate governance, at heart, is designed to help protect the interests of the shareholders. The U.S. Congress chose to do that by enacting Sarbanes-Oxley, designed to increase disclosure and fight potential corruption through rigid audit and reporting requirements. The European Union (EU) has also enacted a number of directives in recent years which, unlike “SOX”, are less punitive and center more on shareholder empowerment and the “comply or explain” principle deriving from largely voluntary governance standards.

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Financial regulators face big job

Having reached a grand deal on the biggest overhaul of financial regulation since the 1930s, Congress will soon turn the details over to government agencies, assigning them billion-dollar decisions outside the public's glare.

"Congressional consideration of legislation is like a short brutal battle, compared to the trench warfare of implementing a new law," says Travis Plunkett, legislative director of the Consumer Federation of America.

The financial overhaul bill requires regulatory agencies to pass 350 rules, conduct 47 studies and issue 74 reports, according to the U.S. Chamber of Commerce. The 2002 Sarbanes-Oxley accounting reforms required just 16 rules and six studies.

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Court's Change to SOX Will Not Lead to Its Eventual Repeal

The U.S. Supreme Court ordered a technical change to the SOX accounting rules but did not strike down the law. Most organizations likely will face more regulation in the near future, rather than less.

On 28 June 2010, the U.S. Supreme Court ordered a technical change to the Sarbanes-Oxley (SOX) accounting rules without striking down the Public Company Accounting Oversight Board (PCAOB) entirely. Chief Justice John Roberts said SOX "remains fully operative as a law." The court's opinion is available at http://www.supremecourt.gov/opinions/09pdf/08-861.pdf.

While the Supreme Court's narrow 5-4 ruling upheld the constitutionality of the PCAOB, it also stated that the restrictions on removal of PCAOB members violated the U.S. Constitution's separation-of-power principle.

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Recent news that the Supreme Court struck down part of the Sarbanes-Oxley financial regulations might strike fear into investors. Fortunately, the Court appears to have upheld the spirit of accounting transparency for the good of investors.

Disaster for whom, exactly?
Sarbanes-Oxley became law in 2002, requiring accounting transparency and oversight in the wake of the corporate accounting debacles at Enron and Worldcom. The Supreme Court's ruling basically called the setup of the associated Public Company Accounting Oversight Board unconstitutional, because it wasn't adequately controlled by the president, and thus flew in the face of separation of powers.

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How to Win the Fight Over Sarbanes-Oxley

After five years of legal wrangling, the Supreme Court earlier this week upheld all substantive provisions of the Sarbanes-Oxley law. Even though the law, an overbearing, poorly drafted, government-knows-best monster, easily ranks among the worst portions of the entire United States code, it’s difficult to argue with the Court’s majority reasoning. In hoping that the law might somehow be defeated in the courts, the free-marketers that challenged it made a mistake. Rather than trying for legal long-shots, it’s time to challenge the law’s burdensome core section.

Some background: in the wake of the Enron and Worldcom scandals, President Bush signed Sarbanes-Oxley into law in 2002. The single most important provision of the law, known as section 404, requires an independent audit of nearly every public company’s internal controls on financial reporting.

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Schumpeter: Two cheers for Sarbanes-Oxley

The Supreme Court gets it right by tweaking, but not overturning, the controversial legislation

AMERICAN business people of a conservative nature have been dreaming about driving a stake through the heart of the Sarbanes-Oxley act ever since the legislation was passed, back in 2002, in the wake of the Enron, Tyco, WorldCom and Global Crossing scandals. George Bush rightly described the legislation as “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt”. But to its critics it is far-reaching in the wrong direction. The American Enterprise Institute, a right-wing think-tank, has dismissed Sarbox as a “colossal failure”. Ron Paul, a Texan libertarian, has argued that it puts America at a competitive disadvantage.

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Sarbox and the Supremes

And so the US Supreme Court has finally given its ruling on whether Sarbanes-Oxley is unconstitutional. And reading it through, you would have to say that the Supremes are sitting on the fence.

The Free Enterprise Fund, a free-market pressure group, had filed a lawsuit claiming that SOX violates the separation-of-powers mandate under the US constitution. The argument goes that the Sarbanes-Oxley legislation, passed in the wake of the Enron and WorldCom scandals, creates a body that regulates the accounting industry, the Public Company Accounting Oversight Board (PCAOB), without giving the president power to appoint the members of the body.

That's the kind of stuff lawyers love to talk about but it's also important. If the Supreme Court agreed with the free marketers, it would have thrown out the law which governs US business.

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Sarbanes-Oxley Gains Some Acceptance, Survey Finds

It has been nearly eight years since the Sarbanes-Oxley Act was signed into law. And ever since, its worth has been the subject of hot debate by the chattering classes.

But in a new survey by the consulting firm Protiviti, 70 percent of the more than 400 respondents who have put into place accounting controls required by Sarbanes-Oxley at their companies said that the benefits outweighed its costs.

That positive figure appears to rise over time: only 39 percent of executives in their first year of Sarbanes-Oxley requirements found the impositions useful over all.

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Breaking the client-auditor nexus: another Sarbanes-Oxley change?

There has been a lot of focus lately on cosy client-auditor relationships that allow companies get away with fiddling their books, even fraud. The uproar over the way Ernst&Young allowed its client Lehman Brother to hide toxic assets through accounting trickery, something I looked at in my blog entry here, is a case in point.

There is no doubt that E&Y had a close relationship with Lehman. As Tax Guru points out in his blog , Lehman Brothers had paid E&Y $160 million in audit fees since 2001 and the relationship goes back to 1994. Now, $160 million represents a significant auditor-client relationship.

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Efficiently Maintain SOX Compliance

While Congress and accountants continue to fight the Sarbanes-Oxley 404 requirements for small filers on what seems like an annual basis, those in the private sector continue to deploy SOX-related policies and procedures as best practices. This trend will continue as the cost of compliance becomes more efficient.

For example, the American Institute of CPAs’ issuance of Statements of Auditing Standards No.’s 104 to 111 currently requires the use of risk-based audit methodology by auditors. As a result, private companies are seeing more controls-based questions and requirements from their auditors.

In the wake of Enron and assorted other accounting scandals, President Bush signed into law Sarbanes-Oxley Act of 2002, the most dramatic change to federal securities laws since the 1930s. Specifically, Section 404 of SOX requires that management document, test and adequately support the effectiveness of its internal controls.

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Efficiently Maintain SOX Compliance

While Congress and accountants continue to fight the Sarbanes-Oxley 404 requirements for small filers on what seems like an annual basis, those in the private sector continue to deploy SOX-related policies and procedures as best practices. This trend will continue as the cost of compliance becomes more efficient.

For example, the American Institute of CPAs’ issuance of Statements of Auditing Standards No.’s 104 to 111 currently requires the use of risk-based audit methodology by auditors. As a result, private companies are seeing more controls-based questions and requirements from their auditors.

In the wake of Enron and assorted other accounting scandals, President Bush signed into law Sarbanes-Oxley Act of 2002, the most dramatic change to federal securities laws since the 1930s. Specifically, Section 404 of SOX requires that management document, test and adequately support the effectiveness of its internal controls. It also states that such documentation, testing and support be audited and reported on by its external auditors.

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Room for improvement on 404?

Many people will argue that the Sarbanes-Oxley (Sarbox news) has been a success, in particular Section 404 (404(b) news). At large companies, I think you can make a strong case for this. Restatements have fallen and so have compliance costs. Some companies are realizing strategic benefits, but there's always room for improvement.

A survey by Ajilon Finance Solutions, which polled 210 accountants, has found that 73 percent of finance professionals "believe their company could be more efficient in the implementation" of Section 404(b). This section, as you know, requires management and external auditors to report on the adequacy of the company's internal control over financial reporting.

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Has Sarbox lead to a chill on information flow?

One goal of Sarbanes-Oxley (Sarbox news) was to ensure that the information disseminated by companies was accurate and that executives were accountable for it. But you often hear Sarbanes-Oxley used as excuse. Executives are so concerned with saying the wrong thing, they tend to clam up. To be sure, there may be cases where executives use the law as an excuse, though Reg FD is just as applicable. Still, the idea of Sarbanes-Oxley and the chilling effect is explored in Finance & Commerce, which takes a look at the advertising industry.

Says one executive: "We're oftentimes more limited in what we say because we're part of a publicly traded company (IPO news)." The pages of Advertising Age reflect the times. Reporters "used to page through Advertising Age's agency income issue--back when people still paged through publications--to gauge the size of agencies on an annual basis.

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