Will SOX be de-clawed?

• Author: Swartz, Nikki
• Position: UP FRONT: News, Trends & Analysis - Sarbanes-Oxley Act of 2002

Since its existence, the Sarbanes-Oxley Act of 2002 (SOX)--and specifically Section 404, which requires companies to publicly disclose more information about their internal financial controls--has been criticized. So, it should come as no surprise that top regulators and lawmakers have announced that the law will be revised, even as new studies show SOX has been beneficial, although expensive, for companies.

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Most U.S. executives agree that SOX has helped prevent fraud, but some have complained loudly that the costs of the corporate-governance legislation in terms of time and money outweigh its benefits.

For example, according to a Sunday Times report, auditing a company now costs 50 to 120 percent more than it did before SOX, depending on the firm's size. In addition, some public companies have de-listed from the U.S. market or opted to list instead with foreign markets, such as the London Stock Exchange, as a direct result of SOX's stringent rules.

In October, Mark Olson, chairman of the Public Company Accounting Oversight Board (PCAOB), said regulators were reassessing SOX based on corporate executives' complaints and would announce revisions to the law in early 2007. He also said the PCAOB is revising Auditing Standard No. 2, which governs the audit of internal controls.

Also in October, Rep. Barney

Frank (D-Mass.) told Reuters that regulators were working on "thinning down" Section 404 on orders from the U.S. Congress. "I think Sarbanes-Oxley, as administered, has become too burdensome," he said.

Frank also told the news service that the Securities and Exchange...