Accounting rules lower businesses’ competitiveness
Published: Thursday, December 21st, 2006
The Securities and Exchange Commission last week finally eased Sarbanes-Oxley auditing rules to make them less oppressive for smaller public companies, which had called for relief after spending millions of dollars to comply with the 2002 “Enron law.” But such baby steps fall far short. This duplicative, expensive and anti-competitive act, which has tossed sand into the gears of the economy, should be repealed by Congress. The act’s crown jewel, the Public Company Accounting Oversight Board, should be disbanded; it regulates an ever-diminishing number of independent public auditors.The oversight board is expected to make companion proposals this week for the accounting industry. Congress drafted Sarbanes-Oxley from the headlines of Enron’s wrenching collapse, which had whipped up a public frenzy calling for the heads of business Titans. Its meat-ax approach has done nothing but lavish unnecessary layers to existing civil and criminal rules governing publicly owned corporations. For 70 years SEC watchdogs have had ample civil authority to punish accounting or other wrongdoing in the executive suites of the nation’s 7,000 public companies. Moreover, federal and state criminal statutes, covering everything from embezzlement to falsifying public records, are on the books and have been used against such corporate miscreants as trust-fund plunderer Richard Whitney in the 1930s, inside-trader Ivan Boesky in the 1980s and, more recently, WorldCom’s Bernard Ebbers for accounting fraud last year. Even now, nearly five years into Sarbanes-Oxley, of more than 150 significant cases handled in 2006 by the U.S. attorney in New York City — from prosecutions of corporate liars to business bribers — none was charged under Sarbanes-Oxley mandates, according to an office spokeswoman Lauren McDonough. In other words, bad businessmen were and still are going to jail. In one of its most notorious sections, Sarbanes-Oxley requires executives of public companies to vouchsafe financial reporting. Lie about the numbers and Sarbanes-Oxley can send you to prison for 20 years. A truly crooked business exec isn’t going to get religion by signing an SEC form. This business-scandal era’s biggest deterrent to corporate theft had everything to do with Enron but nothing to do with Sarbanes-Oxley. The 24-year prison sentence meted out to Enron CEO Jeffrey Skilling for fraud did more to sober up would-be corporate bosses with borderline larceny in their hearts than a hundred Sarbanes-Oxley report certifications. Sarbanes-Oxley is costly for businesses and, in turn, for the nation’s 57 million investors — many of them moms and pops with a few thousand dollars invested in a 401(k). Public companies spend $4.36 million each, on average, to comply with just one part of Sarbanes-Oxley, Section 404, which mandates accounting controls, according to the finance-officer group Financial Executives International. The SEC originally low-balled the cost of compliance at $91,000 per company. Sarbanes-Oxley has been a horror story for smaller companies like Moore-Handley, an Alabama hardware supplier, which had produced a $300,000 profit in 2002 only to see it almost devoured by $200,000 in Section 404 expenses, according to published reports. These additional costs place public U.S. corporations at a competitive disadvantage in the global market. No wonder some public companies avoid U.S. stock exchanges in favor of less regulated London and even Hong Kong exchanges to raise capital. In 2000, U.S. exchanges attracted half of all initial public stock offerings for new U.S. public companies, according to the Committee on Capital Markets. Since 2002 that number has fallen to 5 percent. Even the socialist British treat Sarbanes-Oxley like the bird flu. They’ve proposed rules to stop the U.S. law from spreading to U.K. shores. They know what the Congress doesn’t: Prior to Sarbanes-Oxley the United States had always attracted world capital because of its stability, free markets and, among other equals, the transparency of its corporations. Sarbanes-Oxley is doing its best to chip away at that legacy, hamstringing our businesses and making them less globally competitive. Sarbanes-Oxley, even post-revisions: The gain, as they say, isn’t worth the pain.
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