Sarbanes-Oxley's unintended results.

• Author: Boyko, Stephen A.
• Position: Letters to the editor - Letter to the Editor

I read with interest your September column, "Widening the Gap: Big GAAP vs. Little GAAP" (President's Page), since it supports similar concepts that I have advocated in advancing the need for an Entrepreneurial Exchange for small-to-medium enterprises (SMEs). Not only do higher imbedded compliance costs from Sarbanes-Oxley-type (SOX) regulation marginalize SMEs and immobilize/ration capital, but an equally troublesome by product is that SOX tortures disclosure to require predictions from firms that lack positive cash flow and stable product demand. You cannot govern "risk" and "uncertainty" under a one-size-fits-all regulatory regime.

Conflating "risk" with "uncertainty" produces the unintended consequences of contingent and unforeseeable liabilities for market practitioners. Holding market participants who deal in uncertain investments to the condition of predictability conveys regulatory rights without attendant regulatory responsibilities. Imposing commands to attain predictive capability on capital markets characterized by "uncertainty" undermines market resiliency and increases the probability of systemic failure. Regulating a market characterized by "uncertainty" as though it...