Signs of a growing desire among some US legislators to re-examine key elements of Sarbanes-Oxley legislation emerged last month as a Republican congressman, Tom Feeney, said he would introduce a bill designed to make it “more acceptable to business”.
Mr Feeney’s bill is the third piece of legislation aimed at changing Sarbanes-Oxley since its passage in 2002 after the Enron and WorldCom accounting scandals. While such efforts are seen as having limited effect until senators Sarbanes and Oxley retire late this year, the bill reflects concern that changes are needed.
Business has complained about compliance and auditing requirements that cost companies hundreds ofmillions of dollars a year.
Sarbanes-Oxley is also being blamed for the growing number of US companies seeking listings on foreign stock exchanges, where rules are less strict. Mr Feeney said Sarbanes-Oxley had “for the most part created a lot of good”but section 404 was “an enormous burden on the US economy”.
Compliance costs had “spiralled out of control” as a result of section 404, which requires management to report on the quality of their controls. He said stock and derivatives exchanges were worried that the stricter regulatory environment could threaten America’s position as the world’s pre-eminent risk management centre.
“We are now busy as a consequence largely of Sarbanes-Oxley of out-sourcing America’s lead in world capital formation,” he said, warning that the flow of US companies listing abroad could cause the US to “lose market share to Shanghai as well”. His proposed legislation would make it voluntary for companies with annual turnover of US$700m or less to comply with section 404.
It would also require the Securities and Exchange Commission to define more clearly what a “material accounting error” was, Mr Feeney said.
A third element would allow a company’s external auditors to give advice to internal auditors. Instead of being subjected to annual audits, companies with market capitalisation over US$700m could have random audits. Finally, Mr Feeney said he would propose that the SEC study UK accounting principles to see how section 404 could be implemented more smoothly.
Pete Sessions, a Texas Republican who supports Mr Feeney’s effort, said he was “not sure that the SEC is over-regulating”. Instead, he said, he believed it was “not providing enough definition or direction as to what is good and bad”.
He said he believed SEC chairman Christopher Cox “understands the enormity of the problem”. Asked what progress would be likely to make changes with the proposed bill, he said: “We’re going to ram this down the throats of the naysayers. We need to get this done.”