Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, September 20, 2006

Sarbanes “net contributor to the nation's economic health” say Chairman Cox.

SOX has made great contributions to the US economic health, said Chairman Cox. CEO’s of the largest US companies, and the UK Government beg to differ.

One of the more controversial areas is in compliance with the internal-controls rules. The SOX package of corporate accounting reforms includes a requirement for public companies to review their internal controls over financial reports annually, subject to a second check by the firm's outside auditor. Critics say the requirement, already in effect for larger U.S. firms, has been costly and could crush smaller companies, which are still exempt from it.

However, Cox argued differently. In his testimony to a House committee this, he said that while complying with internal-controls requirement has been costlier than anticipated, it is producing significant benefits. He said he's "convinced that there are no irreparable problems" with that part of the 2002 law and officials are working on ways to make compliance more cost-effective. He assured lawmakers that the SEC has ample authority to make changes on its own and doesn't need Congress to revisit the law.

To do this, the SEC and the Public Company Accounting Oversight Board will issue guidance on internal-controls compliance in the first half of 2007. If that deadline is missed, they will give smaller companies another extension from complying with the law. Other exclusions will include some of the 1200 foreign private issuers that are accelerated filers. Approximately a quarter will receive the one-year extension of the compliance dates.

However other evidence suggests that CEO’s are not necessarily in agreement. According to a survey by the NYSE, CEOs are vocal regarding the downside of the regulation. Nearly half of U.S.-based businesses cited a spending increase of 100 percent or more over the past three years to comply with new regulations.

Compliance also takes a personal toll, CEOs say. Nearly all CEOs report that their job involves greater personal legal risk than it did three years ago. Nearly three out of four claim to spend more time reporting to the board, and almost 90 percent say they dedicate more time to regulatory issues.

And the headline story has often been the impact of SOX on the US markets of overseas companies to choose a US listing. Chairman Cox noted how remarkable it was that provisions of SOX are being adopted by overseas governments. Nonetheless, the UK Government acted this week to propose laws giving the Financial Services Authority powers to veto regulatory changes proposed by any new owner of the LSE.

So not everyone agrees with the roseate view of the benefits of SOX, advanced by Chairman Cox.


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