It has been almost nine years since the Sarbanes-Oxley Act made its debut, forcing new or enhanced accounting standards for all public U.S. companies. SOX is designed to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise, but it has been a source of controversy since its implementation.
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Lawsuits have been filed questioning SOX’s constitutionality, with opponents (including Newt Gingrich, who has lobbied for SOX’s repeal) saying it created overly complex regulations for U.S. financial markets that reduced the United States’ competitive edge against foreign financial institutions.
But a national survey of chief audit executives by Grant Thornton LLP found that while almost half said a shifting regulatory landscape poses the greatest threat to their business, 88% do not believe SOX should be repealed for all companies.
“Whether this outlook reflects resistance to additional regulatory change in the form of repeal or, alternatively, recognition that SOX provides value to some organizations is unclear,” according to a Grant Thornton report accompanying the survey’s findings. “Based on discussions with various CAEs during the survey process, many believe that SOX brings a continued focus by management on financial and governance-related controls.”
For the chief audit executives who believe that SOX should be repealed, the cost of SOX compliance was their main reason, the survey found.
In addition, maintaining SOX compliance was just the tip of the iceberg when it comes to the number of regulations introduced in the past decade. The Grant Thornton report notes that since the passage of SOX, organizations have had to dedicate significant resources to comply with a host of new laws and regulations, including the Red Flags Rule as mandated by the Fair and Accurate Credit Transactions Act of 2003; Payment Card Industry security standards; the HIPAA Privacy Rule; and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The chief audit executives surveyed said there are additional risks beyond potential noncompliance with these new laws, including risks involved with global expansion into new regions or culturally different locations (22%), new initiatives as the economic recovery takes hold (13%), and the launch of new products or services (12%).
It’s probably good (although moot) that the chief audit executives do not believe SOX should be repealed, mainly because it does not look like the act is going anywhere. The U.S. is still in the throes of a financial crisis, and it’s unlikely the country will repeal a law that creates checks and balances to protect consumers from another crisis.
Even if SOX is repealed at some point, regulations mandated by the other laws mentioned above will keep chief audit executives and compliance officers on their toes. If nothing else, these regulations provide the “continued focus by management on financial and governance-related controls” that the survey respondents cited as one of the benefits of SOX compliance.