| Bye, Bye, SOX? | |
| The Sarbanes-Oxley Act (SOX) | SOX compliance has been extended |
| may be declawed by upcoming | four times, but they wonรขยยt need to |
| U.S. Congress and | comply at all if the Garrett-Adler |
| Supreme Court decisions. | amendment makes it to the Senate |
| The House of Representatives | floor as a standalone bill. |
| recently voted to approve the | SOX also established the |
| Garrett-Adler amendment, which | PCAOB to oversee and regulate |
| would exempt small companies | audit firms. PCAOB operates under |
| from SOX Section 404 provisions, | the supervision of the Securities |
| while the Supreme Court is considering | and Exchange Commission (SEC), |
| the constitutionality of the | which also appoints PCAOB members. |
| Public Company Accounting Oversight | It is funded by fees charged to |
| Board (PCAOB). | audited firms. When it was established, |
| These developments may have | Congress wanted the board |
| long-term implications for SOX, the | to be separate, with its own funding |
| 2002 legislation passed in the wake | stream, and outside normal civil |
| of the Enron, WorldCom, and Tyco | service laws so it could attract |
| scandals. The outcomes may also | highly qualified specialists. PCAOB |
| have implications for records managers, | membersรขยย salaries are more than |
| information technology specialists, | $500,000 and are reviewed by the |
| and compliance officers | SEC. |
| who devise and implement company | Pro-business advocates, represented |
| controls. | by the Free Enterprise |
| Section 404 of SOX requires | Fund, argue that the PCAOBรขยยs governance |
| company auditors to attest to the | structure is unconstitutional |
| soundness of the firmรขยยs internal | because it is an independent |
| controls and financial statements. | agency that does not allow for the |
| Internal controls may include anything | president to appoint members. Additionally, |
| from transaction approval authorizations | because only the president |
| to records retention | can remove SEC commissioners |
| programs. This provision is widely | for cause, and because |
| blamed for an increase in auditorsรขยย | the SEC can only remove PCAOB |
| fees, as well as increased expenditures | members for cause, some court |
| to ensure that proper internal | members believe this is a formerly |
| controls are in place. | unrecognized limit of the presidentรขยยs |
| Small firms รขยย those with | powers that may contradict |
| less than $75 million in | the constitution. |
| market capitalization | The Supreme Court will take up |
| รขยย have protested that | the issue soon, and some legal experts |
| compliance with SOX 404 would | believe that SOX could be |
| cost them a disproportionate share | abolished completely if the court |
| of their earnings. The complaint is | rules the PCAOB unconstitutional. |
| supported by an independent study | |
| conducted at Pennsylvania State | |
| University, which showed that | |
| firms just over the $75 million | |
| mark paid nearly $700,000 more in | |
| audit fees and had average earnings | |
| of negative $1.4 million in 2004 | |
