Sarbanes-Oxley report card is mixed: three years after the law was enacted, has it made a demonstrable difference in the level of corporate fraud? Opinion is divided, at best, though there's a general feeling that corporate governance has improved.

• Author: Sweeney, Paul
• Position: Fraud

Is Sarbanes-Oxley working? For a multitude of stakeholders and interested parties--including top executives and managers in Corporate America, auditing firms, forensic accountants, all manner of consultants, government regulators, Washington lobbyists, politicians, shareholders, lawyers, journalists, economists, the courts and even the general public--this remains a burning question.

Three years after its passage, is the law enacted in the aftermath of looting and plundering at such billion-dollar companies as Enron, WorldCom, Global Crossing and Tyco preventing, detecting and/or exposing fraud?

There is no easy answer. Despite billions of dollars collectively spent by corporate giants and lesser-sized public companies to achieve compliance with the myriad provisions in the 2002 law, there appears to be incremental progress, but the jury is still out. So far, Sarbanes-Oxley is not the deal-closing magic bullet many law-makers may have hoped for.

"What I think we've seen is a mixed bag," says Harvey Kelly, a forensic accountant and managing director at Alix Partners, a New York-based restructuring and financial consulting firm. "We are still seeing inappropriate accounting practices and improper financial reporting, both in the form of wrong numbers being published and in the failure to follow accounting rules, as well as incomplete and improper disclosures."

Kelly, who heads the corporate investigations practice at the firm and is author of Accounting Irregularities and Financial Fraud, nonetheless sees many positive signs. "One of the most pronounced effects that corporations are facing is an explosion of whistle-blower-type activity," he says. "They're following up on even ambiguous allegations, rumors, anonymous tips and articles that they read in the newspaper. I definitely think that there's a sea change in how Corporate America reacts to those claims.

"Today," he adds, "accounting concerns bubble up much more rapidly to the attention of the audit committee than they did before Sarbanes-Oxley. Audit committees are increasingly taking the initiative to see that investigations are performed independent of existing management. They're responding much more rapidly--taking these matters out of the hands of management and hiring outside law firms and forensic accountants and trying to nip problems in the bud. That is a very positive development."

The question of Sarbanes-Oxley's worth and effectiveness remains the subject of much debate. It is grist for numerous panel discussions, roundtables and speeches involving actors at the highest levels of both the private sector and government, particularly after the arduous process of complying with Section 404, the internal controls section of the law.

Nearly half--47 percent--of 106 member companies answering a March survey by the Business Roundtable reported spending $10 million or more to comply with the panoply of rules and...