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Monday, April 25, 2005
SEC hits Sarbanes-Oxley rollback as "unjustified"
WASHINGTON, April 21 (Reuters) - The top U.S. markets regulator told Congress on Thursday it is "unjustified" to call for a broad weakening of 2002's Sarbanes-Oxley business reforms due to concerns about the costs of one part of them that is aimed at strengthening companies' internal financial controls.
At the same time, U.S. Securities and Exchange Commission Chairman William Donaldson said regulators "must be sensitive to the need to recalibrate and adjust our rules and guidance to avoid unnecessary costs or unintended consequences."
His remarks came amid a push by some corporations to roll back Sarbanes-Oxley's Section 404 rules, which force companies to disclose more about their financial control methods and outside auditors to pass judgment on those methods.
About 79 percent of 222 financial executives surveyed recently by Oversight Systems said their companies have stronger internal controls due to Section 404, said William McDonough, chairman of the Public Company Accounting Oversight Board (PCAOB), set up by Sarbanes-Oxley to oversee auditors.
McDonough and Donaldson both testified before the House of Representatives Financial Services Committee, chaired by Ohio Republican Rep. Michael Oxley, who co-wrote the legislation that was the subject of the committee's hearing.
Despite signs that Section 404 is working, McDonough said, "There have been concerns about the cost of those enhancements and about whether those enhancements create counterproductive, unintended consequences."
Oxley said the PCAOB has improved oversight of auditors. In addition, he said, "Oversight of management activities by corporate boards has been significantly improved."
On Section 404, Oxley said, "We may have heard a complaint or two about the costs, but the benefits are undisputed."
Compliance costs for Section 404 have been higher than expected, especially for smaller companies, he said, adding he believes it should be possible to reduce 404 compliance costs.
Massachusetts Democratic Rep. Barney Frank said Section 404 compliance costs pale by comparison to the soaring pay of top corporate executives as workers' wages stagnate.
"This is something that we have to address," Frank said. "The agenda for corporate governance should be what do we do next, not how do we go backwards."
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