Are You Better Off Now Than You Were 10 Accounting Scandals Ago?

For those who pay attention to such things, you know that yesterday marked the 10^th anniversary of Sarbanes-Oxley, the sweeping reform legislation enacted in the wake of the billion-dollar accounting implosions at Enron and WorldCom and the ensuing collapse of former Big-Five firm Arthur Andersen.

The law, which created the Public Company Accounting Oversight Board, mandated strict requirements for outside audits, included prohibitions on consulting services for public audit clients, and required executives of publicly traded entities to sign off on their financial reports. Accounting firms with SEC practices were also required to register with the PCAOB, a roster than now includes roughly 2,400 firms including 900 outside the U.S.

Since the law was passed, debates have raged on both sides as proponents hail its effectiveness and mandated transparency and those on the other side point to its onerous and often expensive guidelines — in particular Section 404, which, unlike most government regulations, runs just a few paragraphs.

To mark SOX’s decade-long milestone last week, a House Subcommittee held a hearing with stakeholders who opined on its beneficial effect with regard to accountability, improved corporate governance, and setting the “tone at the top.”

Some at the hearing railed against the costs incurred by smaller public issuers to comply with the 404 requirements, which range anywhere from $92,000 to $2.3 million. And to be fair, the burden to smaller companies without the resources of a GE or GM, is far greater.

But the accounting profession brought it on themselves, as their century-old policy of self-policing was simply not working and scandal after audit scandal was thrust into the national spotlight, courtesy of 24/7 coverage and scores of cable business channels that did not exist a generation ago.  Previous audit implosions such as McKesson and the National Student Marketing Corp. were relegated to the business sections of daily newspapers and not the glare of CNBC, Market Watch, Fox Business Channel, Reuters et al.

But arguably SOX’s  most significant contribution has been enhancing investor protection.

Sadly, I’m sure there are several thousand former employees of both Enron and WorldCom (not to mention Tyco and Qwest) whose entire retirement portfolios suddenly evaporated  without any hope of ever returning.

I’m sure they’d have an opinion or two on whether we needed Sarbanes-Oxley.