Sarbanes-Oxley

Just yesterday, I wrote about how Sarbanes-Oxley was nothing more than a pathetic attempt by Congress to make it look like they responded to Enron. My article was to prove a point about proposed security legislation. However, this article came out today: Execs tell regulators Sarbanes-Oxley costs exceed benefits.

Two years of compliance with the Sarbanes-Oxley Act (SOX) have shored up corporate accounting practices - but with lopsided costs compared to benefits gained.

[snip]

"The Sarbanes-Oxley Act was a critical step in addressing an unprecedented string of corporate scandals that were rooted in very serious governance, accounting and audit failures," said SEC Chairman Christopher Cox in his opening remarks. Section 404 has the potential to improve the accuracy and reliability of financial reporting - but only if it's implemented properly, Cox said. "In practice it hasn't always worked out that way," he acknowledged.

Likewise Bill Gradison, acting chairman of the PCAOB, said that guidance the SEC issued last year and PCAOB's latest auditing standard may not be enough to clarify the rules that govern the reporting and auditing of internal controls. "Based on the information we already have, it would seem that some further changes may be in order," Gradison said.

I'm on a Sarbanes-Oxley project at the moment and I can see how this is ever so true. On the surface, it seems like Sarbanes-Oxley is a good thing for all people. You know, birds sing, flowers grow, and nobody will ever go hungry again all because Paul Sarbanes and Michael Oxley wanted to look like they were doing something about those evil tycoons.

Then reality sets in. Unlike HIPAA, Sarbanes-Oxley is not well defined. So companies have been trying to interpret vague legislation and then change their internal cultures to comply. Further complicating things is that everybody in management is scared, so each company has hundreds of layers of management in CYA mode making their own interpretations of a law written by a clueless legislative body so out of touch with day-to-day reality, they think they needed a law for actual crimes that were already illegal. Naturally, businesses can't stay open unless they can make a profit on top of the cost of compliance. Like the over-regulated medical industry, other industries forced into compliance will pass the costs along. Average citizens pay for both compliance through products and services purchased and enforcement through taxes. Good work, Congress.

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