Sarbanes-Oxley Is Dead/Not Dead – Round 3,413

Posted on 25. May, 2007 by in Accounting

sarbanesoxleyfordummies.jpgFor those of you who don’t know, Sarbanes-Oxley (or Sarbox or SOX) is a piece of legislation that was signed after the Enron and WorldCom accounting scandals in an effort to decrease the amount of fraud in Corporate America. However, the cost for companies to implement the laundry list of requirements has cost major corporations millions of dollars and guaranteeing a job for every accountant in America. As the bills for complying with SOX keep rising, companies have been trying to put pressure on congress to give up on Sarbanes-Oxley – or at least scale it down a bit.

The Denver Post, however, is reporting that fraud is still to pervasive to roll back SOX – even at the extreme level of time and cost we’re now seeing.

Their reasoning? A new study put out by the Institute for Fraud Prevention (www.theifp.org). The new study of 374 companies accused of securities fraud between 1997 and 2002, found that an average of seven people were implicated in each case, including CEOs, chief financial officers, chief operating officers, general counsels, board directors and auditors.

CEOs were implicated in nearly 90 percent of the cases examined. Next came CFOs, 78 percent. Then board directors, 40 percent; vice presidents, 36 percent; COOs, 20 percent; controllers, 19 percent; and general counsels, 7 percent.

Big accounting firms – including Arthur Andersen, KPMG, Deloitte & Touche, Ernst & Young and Price Waterhouse – were implicated in 18 percent of the cases, the study said. (Grant Thornton, which sponsored the study, is not mentioned, but it has had similar issues.)

The study really had two main points, that are really quite well-known and are the driving forces behind the Sarbanes-Oxley legislation. The first is that fraud on such a large scale is rarely perpetrated by one person. Instead, members of management collude together to commit the fraud and then hide it. The second main point is that the main corporate body put in charge of preventing fraud, the Board of Directors, did not do their job. Instead of being an independent voice of reason, too many times the Board followed whatever management told them.

The combination of collusion and the lack of checks and balances is just like gasoline on a fire.

However, the study and article fail to mention how the current corporate environment justifies keeping Sarbanes-Oxley in place. Maybe they just forgot that point.

One Response to “Sarbanes-Oxley Is Dead/Not Dead – Round 3,413”

  1. predatory lending

    27. Jun, 2009

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