Happy Anniversary Sarbanes-Oxley! An OpEd in the Financial Times

I have an opinion piece in The Financial Times in honor of the tenth anniversary of Sarbanes-Oxley on July 30.

I have always been a huge supporter of the law but a harsh critic of its implementation and enforcement. I’m also no fan at all of efforts during the past ten years to delay and then defeat the 404(b) portions of the law for “smaller” companies. The JOBS Act gutted what was left in the name of “jobs and growth”. After the Facebook IPO fiasco and the joke of organizations like the Manchester United soccer club using the law to qualify as an emerging growth company and escape most scrutiny for its capital raise, you have to ask yourself:

Who’s zoomin’ who?

Who are you kidding? The smaller and newer the company, the more likely it is there’s no internal audit function, a domineering founder or family owner who says my way or the highway  – PFGBest or Koss – and few if any internal controls like segregation of duties and a fully independent board – if fully independent boards even exist.

So, after sitting through several hearings where Senators and Congressmen – not just the GOP and Tea Partiers but Democrats, too that have been bought and paid for by lobbyists – advocate cost/benefit analyses and “jobs and growth” over investor protection, I thought it might be interesting to turn that chant on its head.

What’s one of the biggest sacred cows in capital markets universe?  The mandate of an independent audit chicken for every listed company pot. That obsolete government-sponsored franchise benefits only the Big Four and costs shareholders billions ever year.

And what has it done for you lately?

My opinion piece is entitled:

Ten years after Sarbox, time for an audit of the auditors

Today is the 10th anniversary of the Sarbanes-Oxley Act, which was enacted by Congress “to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud”. It has failed. Most importantly, Sarbox has not restored investor confidence in audit companies after Arthur Andersen’s failure to mitigate fraud at Enron…

We need reform – again. Time limits on the use of any one auditor, annual audits by two companies and changes to fraud reporting have been suggested. But these are superficial proposals. Regulators should start with a cost/benefit analysis of the industry and its delivery model.

Read the rest at The Financial Times. Yes, it requires a subscription. But, take it from me. They’re worth it.

9 replies
  1. Scott
    Scott says:


    I have always believed that Sarbanes-Oxley was a huge mistake.

    However, you make an extremely important point that should be forcefully and frequently proclaimed: The scope-outs for small companies are removing Sarbox requirements for the public companies that “need” them the most. Many of these companies are indeed run by autocratic and/or inexperienced founders who do not understand or appreciate the extent of the obligations they have taken on to public shareholders by accepting their investments in the company.

    This is not to say that there are not valid reasons for scoping out smaller public companies from Sarbox. The law as written—and the federal regulatory apparatus mustered (SEC) and created (PCAOB) to enforce it—are particularly ill-suited to the circumstances of small companies. (I think they function poorly for larger companies, as well.)


  2. Carl Olson
    Carl Olson says:

    Sarbanes-Oxley promised big fines and jail time for executives who signed false financial statements. But so far there have been ZERO prosecutions.

    How about AIG, Fannie Mae, Freddie Mac, Merrill Lynch, etc.?

    Attorney General Eric Holder needs to start prosecuting ASAP. We need a nation of the rule of law.

  3. Sara McIntosh
    Sara McIntosh says:

    I agree whole-heartedly. But alas, why would you expect the PCAOB to be able to implement any true SARBOX intent? They can’t even get workpapers out of the Chinese branches of the public accounting firms they supposedly monitor and control.

  4. Accountant
    Accountant says:

    Dear all,

    Does pcaob put a staff who was instructed by manager or partner to sign off and backdated other cpas workpaper? The staff is not a cpa.

  5. Accountant
    Accountant says:

    Dear all,

    Will pcaob put a staff who was instructed by manager or partner to sign off and backdated other cpas workpaper in jail or make him lose his current job (not the company which was investigated by the pcaob)? The staff is not a cpa.

  6. Francine
    Francine says:


    This is not an offense that lands you in jail. But depending on the circumstances you could be in trouble professionally. if you are not a CPA there is not much they can do but if you want to be a CPA and they find you responsible too, that may be a problem in the future. I suggest you get a lawyer if you do not already have one.

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