SOX at six: is it working?

In light of the Enron scandal and other cases of corporate accounting fraud, Congress enacted the Sarbanes-Oxley Act in 2002 to protect investors of public companies. Six years later, what has been the result of the law—known as SOX? A panel of experts weighed in during the recent program “SOX at Six: Is it Working?” at the ABA Annual Meeting in New York.

When asked about the implementation of SOX, Harvey Goldschmid, formerly with the Securities and Exchange Commission, indicated that the result has been mixed, but he prefers “seeing the glass as half full.” While the corporate governance measures adopted as result of the law are "not perfect," he said they are better than before. The SEC has more resources, and the regulation for the auditing committees and the accounting profession is much improved over the former self-regulation process.

Further, Goldschmid stated that he didn’t believe the U.S. had lost business due to the implementation of SOX. While some believe that SOX stifles U.S. companies, others believe that it instead strengthens businesses by enhancing their stability and restoring public trust.

Given the volatility of the U.S. market, moderator John K. Villa prodded Goldschmid on any effect that SOX may have had on the market. Goldschmid indicated no definite connection between the two, saying it’s still very early on in the implementation of Sarbanes-Oxley. For example, the filings mandated under Section 404 of the law are still not imposed on small firms. Goldschmid said that if small firms can't meet basic, fair value accounting standards, they shouldn't be public companies.

Panelists seemed to agree that SOX was long overdue. John Geron of New York replied that the accounting profession had, in some ways, become its own worst enemy even prior to the public outcry resulting from the corporate misdeeds that surfaced in the late 1990s and early 2000's. For example, some accounting firms undersold initial services in hopes of garnering additional services later on. As a result, there is now a Public Company Accounting Oversight Board to help prevent fraud.

Joshua R. Hochberg of Washington, D.C. and Caroline K. Cheng of New York also served as a panelist. The program was sponsored by the Section of Litigation.

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