SOX Center

Study finds small firms hit especially hard

A new University of Georgia study finds that the landmark Sarbanes-Oxley Act of 2002 and related rule changes of the major stock exchanges have dramatically altered the makeup of corporate boards, making them larger and more independent. The legislation also had the unintended effect of increasing director pay by more than 50 percent.

“Post Sarbanes-Oxley, the demand for directors by firms is up and the supply is down because the job is harder,” said study co-author Jeff Netter, a finance professor and chair holder in UGA’s Terry College of Business. “So what do you find” Pay is up – pay is way up.”

The Sarbanes-Oxley Act (SOX) was passed with near unanimous Congressional approval following the corporate scandals that brought down companies such as Enron and WorldCom. Among other things, the act and changes imposed by the New York Stock Exchange and Nasdaq sought to enhance corporate governance by promoting board independence and imposing greater responsibility and accountability on board members.

EurekAlert: UGA study finds surge in director pay following landmark Sarbanes-Oxley Act of 2002

You almost have to get lost to find Ocean Bio-Chem, a Fort Lauderdale company that makes the Star Brite brand of cleaning products for boats. It’s hidden away in the back of an industrial park alongside Florida’s Turnpike. Walk into CEO Peter Dornau’s cramped ground-floor office, and Jake, his chocolate Labrador, follows you in.

You get the picture. It isn’t exactly the IBM corporate campus or Coca-Cola’s headquarters.

Nevertheless, Ocean Bio-Chem’s shares trade on the Nasdaq, and like all companies listed on major exchanges, it must adhere to the Sarbanes-Oxley Act of 2002, the stiffened financial reporting requirements introduced in the aftermath of the Enron and fraud scandals.

Sun-Sentinel: Small businesses struggle with Sarbanes-Oxley

The Public Company Accounting Oversight Board on May 24, 2007, will vote on a final standard on auditing internal control over financial reporting, as well as a related independence rule and conforming amendments to the Board’s auditing standards. If adopted, the new standard would supersede the Board’s existing auditing standard, Auditing Standard No. 2, “An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.”

The Board also will vote on two recommendations to amend the Board’s rules on the frequency of inspections. The first recommendation is to propose for public comment an amendment to Rule 4003. The amendment would remove the requirement that the Board regularly inspect each registered public accounting firm that plays a “substantial role” in audits but does not issue audit reports. The Sarbanes Oxley Act of 2002 only requires the Board to inspect registered firms that regularly issue audit reports.

Accounting Education: PCAOB TO VOTE ON NEW STANDARD FOR AUDITS OF INTERNAL CONTROL

The Public Company Accounting Oversight Board on Friday concluded its first International Auditor Regulatory Institute.

Representatives from auditor regulators and government agencies from more than 40 countries convened on Wed., May 2, in Washington, D.C., to learn more about the PCAOB’s programs and how it carries out its mandate under the Sarbanes-Oxley Act of 2002.

The institute took place over two and a half days, with one full day devoted to discussions about the PCAOB’s inspections program. The institute also covered other activities of the PCAOB, including standard-setting, the enforcement process and international cooperation.

The Sarbanes Oxley Act directs the PCAOB to oversee and periodically inspect all accounting firms that regularly audit U.S. public companies. More than 780 audit firms currently registered with the PCAOB are located outside of the United States, spanning 80 countries.

SmartPros: PCAOB Concludes First International Auditor Regulatory Institute

Sarbanes-Oxley world continues to turn. And although many claim that it is spinning out of control, signs are beginning to indicate that a move to a more stable and rational environment is pending. Let me highlight just a few of the reasons for the roller coaster ride and some of the relief that is on the way.

Real or perceived drastic events result in drastic measures. The nine?month period that ended with the passage of the Sarbanes-Oxley Act of 2002 was no exception. A quick look at the major headlines during that time tells the tale of a crisis in the making.

• Nov. 8, 2001 — Enron restates earnings for past five years, reports $586 million in losses
• March 27, 2002 — Adelphia says $2.3 billion borrowed by Rigas family not on books
• June 4, 2002 — Tyco CEO indicted on tax evasion charges
• June 12, 2002 –ImClone CEO Samuel Waksal arrested on insider trading charges
• June 25, 2002 — WorldCom admits to inflating earnings by $3.8 billion

LocalTechWire: As the World Turns, Businesses Continue To Struggle With Impact of Sarbanes-Oxley

The U.S. and Europe should be able to achieve a single accounting standard by 2009, the chairman of the Securities and Exchange Committee, Christopher Cox, said Sunday.

Cox was appearing on a panel at the German Marshall Fund Brussels Forum. In other comments, he said the SEC was proving able to modify the U.S.’s Sarbanes-Oxley legislation to meet European concerns and that he expected the accounting progress to become a key part of a new transatlantic partnership on eliminating regulatory divergences.

U.S. President George W. Bush and German Chancellor Angela Merkel are due to sign a new regulatory partnership Monday in Washington. The deal will create a transatlantic council to set priorities. Accounting standards are a “wonderful example,” a “tangible result” of what the new accord can achieve, Cox said. Progress towards common accounting standards is “going swimmingly,” he added. Specifically, he said the SEC was already willing to allow foreign issuers of securities to report results either in the IFRS international standards or the U.S. GAAP standards. It soon will consider whether allowing U.S. issuers to have a similar choice, he added.

European and U.S. regulators are working together well, Cox continued. He noted how they had managed to avoid a “calamity” when the New York Stock Exchange took over Euronext. He also noted how the SEC had managed to be “attentive to European concerns” about Section 404 of the U.S. Sarbanes-Oxley Act of 2002, which required strict internal audits of corporate accounts.

MarketWatch: SEC’s Cox sees common accounting standards by 2009

Retired Congressman Michael Oxley blames the PCAOB for starting “all the problems” with the Sarbanes-Oxley Act.

Michael Oxley has been guaranteed immortality — and perhaps a degree of infamy — since his name was affixed to the Sarbanes-Oxley Act of 2002, the most comprehensive set of corporate rule changes since the 1930s.

Earlier this year, Oxley retired from Congress after serving 25 years. However, the 63-year-old Republican from Ohio is not ready to fade from the scene. In the last month, he has picked up two new jobs, as counsel for the Cleveland-based law firm Baker Hostetler and non-executive vice chairman of Nasdaq.

The act that bears his name missed unanimous passage through Congress by a mere three votes in the House, and initially received grudging lip service from a shaken corporate America. But a little noticed section, just 168 words long, soon changed the debate from whether Sarbox was essential to restoring confidence in the U.S. capital market to whether it was destroying it. Section 404, which required companies and their auditors to examine and report on the processes behind their financial reporting, quickly became the most expensive and hated provision of the act.

CFO.com:Oxley: I’m Not Happy with Sarbox

The SEC’s Commissioners today endorsed the recommendations of the agency’s professional staff to eliminate waste and duplication in the Sarbanes-Oxley compliance exercise, in a move that will particularly benefit smaller companies. The Commissioners urged the SEC staff to continue to work closely with the Public Company Accounting Oversight Board (PCAOB) to make the internal controls provisions of Section 404 of the Sarbanes-Oxley Act of 2002 more efficient and cost effective.

Under the Sarbanes-Oxley Act, PCAOB audit standards must first be approved by the SEC and cannot take effect without a vote of the Commission. The Commission expects the new PCAOB standard will be submitted for SEC review by the end of May or early June, in time for the 2007 financial statement audits.

SEC: SEC Commissioners Endorse Improved Sarbanes-Oxley Implementation To Ease Smaller Company Burdens, Focusing Effort On ‘What Truly Matters’