Sarbanes-Oxley – SOX is 6

The implementation of Sarbanes-Oxley Section 404 (the time consuming and costly auditor attestation requirements) for small businesses, those having a market capitalisation of $75 million or less, continues to get pushed back – in fact Chase Cooper News could probably recycle the same news item on an annual basis.

For large US companies, and large overseas companies having a presence in the USA, SOX is business as usual with only the Financial Accounting Standards Board (FASB) accounting rules provisions creating concern. However even that gets delayed. Banks would have had to consolidate off-balance-sheet vehicles directly into their accounts – they have now been given a one-year reprieve as this could have resulted in $5,000 billion of debt assets appearing on balance sheets and forcing many to raise new capital to cover their regulatory requirements. Given the current state of many banks’ balance sheets – Bear Sterns went, Merrill Lynch is creaking, questions are being asked about Washington Mutual – and the continued CDO-driven write-offs, no one was confident that the banks could take this extra burden.

The Public Company Accounting Oversight Board (PCAOB), set up specifically to supervise SOX and to replace self-regulation of auditors, is now believed to have failed. The constitutionality of the PCAOB is subject to a court decision as to whether its structure violates the US Constitution's separation of powers and appointments clauses. It is likely that the PCAOB will be absorbed into its parent body, the SEC. A sign of its toothlessness is the number of small US and overseas auditors that are continuing to work without having bothered to register with the PCAOB.

A continued cause for concern is the lack of protection for whistleblowers, those who report on their companies accounting violations, with yet another headline where a CFO at a bank was fired the day he reported his own bank.

Happy birthday, SOX