Thompson & McCarty, P.C. CPA

I have complained about the Sarbanes-Oxley act of 2002 (SOX) since it was proposed.  For details and background of SOX go here.  My opinion of SOX is very simple.  The cases (Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom) that gave rise to SOX all involved misrepresentation of fact and illegal acts at the very highest levels of management.  SOX did very little to change anything that was at the root cause of these cases.

The number one substantive change that came out of SOX was the power grab for regulation of the accounting profession by the government via the SEC.  The SEC appoints the 5 board members of the PCAOB.  Any disputes with PCAOB can be carried to the SEC for review and potential reversal.  The second was the implementation of additional internal controls at all SEC companies.   Internal controls are designed to assure that transactions are fully and properly recorded and that assets are protected. They must by design be overridden by management from time to time.  Since management was at the root of the cases above, it follows that additional internal controls are useless against this type of behavior.  The implementation of SOX is now referred to as the “Golden Age” of accounting due to the fees generated by accounting firms to fully implement SOX at SEC companies. 

Other items that were implemented by SOX were largely cosmetic changes or changes that could have been implemented without such sweeping government involvement.  The first legal challenge under the new regulations promulgated by the PCAOB against a CEO was Richard Scrushy / HealthSouth.  The government lost that case in what appeared to be an open and shut case of fraud that occurred over years.  In the end, all we got was useless additional cost that simply increased the cost of doing business and was passed along in the form of higher prices to consumers.

Below is a note I recently shared with a friend concerning SOX after we had some discussion about it.

Here is an example http://www.webcpa.com/article.cfm?ARTICLEID=26918, with some detail, of exactly the kind of behavior that I have discussed with you before that the SOX act is just more Government control.  Note the part where the company had a secret buy back agreement.  It's management that should be punished for the actions here but note that the article doesn't even tell you who executed this transaction or who was involved in hiding a $70 million sale.  The first part of the article is just bad work by the accountant.  But, to hold an accountant liable for secret dealings of an audit client is absurd.  It's like withholding information about a parents minor child by the Doctor, School Teachers and Officials, and everyone else that has knowledge of bad behavior then holding the parent liable for the bad end result.  PUKE!