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Sarbanes-Oxley Costs Exceed Benefits 371

Posted by CowboyNeal
from the fairly-obvious dept.
coondoggie writes "Two years of compliance with the Sarbanes-Oxley Act (SOX) have shored up corporate accounting practices - but with lopsided costs compared to benefits gained. Bill Gradison, acting chairman of the Public Company Accounting Oversight Board (PCAOB), said that guidance the SEC issued last year and PCAOB's latest auditing standard may not be enough to clarify the rules that govern the reporting and auditing of internal controls. 'Based on the information we already have, it would seem that some further changes may be in order,' Gradison said."
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Sarbanes-Oxley Costs Exceed Benefits

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  • Misleading summary (Score:2, Insightful)

    by Raul654 (453029)
    Here's the title of the article: "Execs tell regulators Sarbanes-Oxley costs exceed benefits". Here's the slashdot title: "Sarbanes-Oxley Costs Exceed Benefits". Notice the difference?

    Sarbanes-Oxley is a *very good thing* - it exists to prevent another Enron. It makes CEOs criminally liable for when their companies cook the books. Amazingly, for some inexplicable reason, they don't seem to like it. Everyone reading this should go over to Netflix and add Enron: The Smartest Guys in the Room [wikipedia.org] to their
    • Thank you. I was beginning to think I was confused about the purpose of Sarbanes-Oxley. Of course, some executives are going to complain that it's not helping profits. That's not its purpose. Its purpose is foreclose an avenue of fraud for the dishonest. Is this unfair for the honest guys? Maybe so, but on the whole, isn't it better to protect the investor and the marketplace from corporate criminals?
      • by Firehed (942385)
        Wouldn't it be even better to protect society from 'ethics criminals'? Oil companies are refusing to do anything to lower pump prices because it's not in the best interest of the shareholders, despite it being in the best interest of society as a whole. Captialism is bad for society unless society is a subset of shareholders. Yes, protecting investors from corporate dickheads is a good thing, but protecting everybody from monopolized money-loving dickheads must be a better thing.

        I'm not disagreeing, I

        • by bnenning (58349)
          Oil companies are refusing to do anything to lower pump prices because it's not in the best interest of the shareholders, despite it being in the best interest of society as a whole.

          No, it isn't. High prices encourage conservation and investigation of alternatives, which is exactly what's needed when demand exceeds supply.
          • by Afrosheen (42464)
            I'm not buying the nonsensical argument that the media and big oil keep throwing the public about 'demand exceeding supply'. There are no supply and demand economics at work here. If that were the case, then one would have to assume that over the last 5 years, US consumption has tripled, because prices have tripled. Generally prices go up if demand can't be met, and demand not being met is generally because supply is low, or the supplier is restricting output to drive prices up.

            The big oil companies
        • by thejeffer (864748)
          You're forgetting an important fact. A LARGE percentage of America is knowingly or unknowingly a shareholder in oil companies. You know that retirement plan you have? Your 401k? Those mutual funds you bought? Guess what they include as part of your portfolio? That's right. Shares in those horrible oil companies. The American public loses sight of the fact that while high gas prices certainly hurt your pocketbook right now, there's a silver lining... in the long run, it's actually building up your retirement
        • Well, you didn't come out and say it, so I'm not sure if it's what you have in mind, but if you mean that the very laws that give "life" to corporations need to be re-examined, then yes, you've got an excellent point. I'd go even further, and say that the very assumptions that out culture and civilization are based on need to be re-evaluated.

          But who is to do such a re-evaluation? The politicians? Heh. No, it's got to be you and me. And is there any hope in hell of pushing through such changes of underlying
        • Oil companies are refusing to do anything to lower pump prices because it's not in the best interest of the shareholders, despite it being in the best interest of society as a whole.

          No, it's not. Low pump prices encourage excessive usage (which has a whole bunch of negative direct and indirect flow-on effects, and very few positive ones) and discourage R&D into, and production of, alternative fuels.

          (Incidentally, if you're American, you have no concept of what the words "high fuel prices" mean.)

          Pers

        • Bzzzt. Wrong. (Score:5, Insightful)

          by Kadin2048 (468275) <slashdot.kadin@x[ ].net ['oxy' in gap]> on Friday May 12, 2006 @01:08AM (#15315668) Homepage Journal
          This is wrong on any number of levels.

          First, realize that the majority of stock in the US isn't owned by rich individuals. It's owned mostly by mutual funds, which are in turn used as part of basically every retirement plan, investment account, college-savings plan, ad infinium. If you have a 401k, you probably are an indirect shareholder in Exxon-Mobil (and IBM, and Microsoft, and General Dynamics, and probably Halliburton). If any of the big oil companies were to sneeze, the whole economy would get a cold.

          Second, high-priced petroleum products, especially gasoline, is not necessarily a Bad Thing. I think it sucks as much as the next guy -- if I could click my shoes together and go back to the days of 98-cent per gallon gas forever, I'd be doing it and buying a Camaro before you could say "carbon dioxide." As much as Ma and Pa Jones of Pig's Knuckle, AR think that they want the Gubbermint to step in and 'do something' about the high price of gas, they really don't. Because keeping the price of gas low will only ensure that it gets used up faster, and that we don't do a damn thing to change our usage patterns or wean outselves off of it before it runs out completely.

          In other words, cheap gasoline just makes us, as a nation, press the accelerator to the floor as we're heading towards the brick wall of No More Petroleum. Paying the real market price for gas is the fairest way to wean everybody off of petroleum products: and people are listening. Go down to a Toyota garage sometime and see how many people are looking at hybrids, versus a year or two ago. The difference is pretty impressive.

          The oil companies will continue to charge what they think the market will bear for gasoline and other products; when the cost of transportation fuels starts to become a major source of pain to American families, they will modify their usage patterns. This is how things have to work: people have to understand that the era of cheap gasoline -- probably of cheap fuel in general -- is over. In the future, if you want to drive 300 miles to see Grandma instead of call her, you're going to have to factor in the $30-40 in fuel that it's going to cost you. That's reality; that's life.

          I have no doubt that many politicians this election year will try to come up with all sorts of creative ways of basically subsidizing or otherwise artificially deflating the price of gas. But as they're doing their financial rabbits-from-hats routine, I think it's worth it for everyone to remember that "cheaper gas" doesn't equal "more gas." In fact, it really means 'less gas' for everyone in the future.
        • Enough with the "evil oil companies" bullshit. They don't make anywhere near the amount of money that oil producing nations themselves make when crude prices are high. Saudi Arabia will make $55 billion dollars more this year than they made last year due to the increased price of crude. 55 billion more than they made last year. That is about 27.5 billion dollars more a quarter than they made last year. Exxon-Mobile's profits this last quarter were only 3.8 billion. Not 3.8 billion more than the same quarter
    • Execs ought to be criminally liable for all the illegal decisions they make, and for failure to report illegal actions.

      Just imagine if the Microsoft anti-trust trial put all the execs in jail or worse. Actually, the mere threat of this would have prevented the problems in the first place.
    • Nobody is saying that SarbOx has no benefits. Everybody is saying that SarbOx is too expensive for the benefits it returns.
      • by Anonymous Coward

        Everybody is saying that SarbOx is too expensive for the benefits it returns.

        No they aren't. It's not everybody who is saying that, just the people who look at it and think, "Fuck! How they hell am I supposed to fund that?"

        The rest of us went from thinking "Jesus Fucking-a-Llama Christ! That cock sucking texan just evaporated 10 billion dollars and he's living in a fucking mansion and my pension just disappeared." to "Don't like the costs? Too bad. Maybe you should have called bullshit on your peers when th

        • Maybe you should have called bullshit on your peers when they were busy hiding the fact that they really weren't capable of running a business.

          Exactly my feelings. The people who knew what Enron was doing, the regulators and accountants and banks involved, all knew it was skirting the legal edge, and was way over the moral edge. Yet their attitude was that of a kid watching a rodeo, it was all entertainment and none of their business. Now that society has taken steps to prevent more of it, they cry foul.
      • I think you have gotten the words "Everybody" and "Somebody" confused.
    • by Bill Walker (835082) on Thursday May 11, 2006 @10:44PM (#15315072)
      I think you're confusing the goal of the act with its actual ramifications. Sarbanes-Oxley amounts to a regressive cost of doing business. Small firms pay a disproportionately larger share of their revenues to comply: they have to hire a lawyer or auditing firm when they could have done the paperwork themselves in the past. Meanwhile, larger corporations merely pay more to their existing compliance teams.

      Meanwhile, financial companies, especially hedge funds, are increasingly choosing to set up shop in London rather than New York/Connecticut to escape the burdens of Sarbanes-Oxley and SEC registration. Like them or not, these entities contribute a huge amount of money to local coffers: investors flock from all over the world to place capital in hedge funds, and they leave generally 2% of the investment and 20% of the profit annually with the fund managers.

      No-one wants more catastrophes like Enron, but that doesn't mean we should throw the baby out with the bathwater.

      • by Bob_Robertson (454888) on Thursday May 11, 2006 @10:49PM (#15315099) Homepage
        Exactly. This article from November says exactly the same thing:

        http://blog.mises.org/archives/004345.asp [mises.org]

        "In contrast, the CEO of Georgia Pacific explained that his company sold out to private Koch Industries in order to avoid mounting Sarbox costs."

        and

        "No doubt, a company that had poor controls may have improved them in order to comply with Sarbox. This does not mean that U.S. businesses in aggregate benefited from Sarbox. A law mandating a 45% increase in marketing spending might help some companies too, but it would cripple most others. Even companies with superior internal controls were forced by this perverse law to spend more money on internal controls."
        • This does not mean that U.S. businesses in aggregate benefited from Sarbox.

          But it also doesn't mean that society as a whole did NOT benefit from roping in bad business practices.

          Businesses aren't the sum total of society. They are a small part. If businesses suffer but society gains, who says that is a bad thing? Concentrating soley on the business part of the equation is misleading.
          • by Bob_Robertson (454888) on Friday May 12, 2006 @12:24AM (#15315523) Homepage
            The problem being that business isn't a small part of society. It is a major portion of how people interact.

            Most of my interactions with other people, from a subscription to the YMCA to where I stop for cigarettes to the people I work with to the decision to mow my own lawn or hire a gardener, are business related.

            The moment I step out of my door, which I bought, the actual number of people I deal with on a purely social level as opposed to the number of farmers, butchers, bakers, candlestick makers that I deal with on a business basis is very close to vanishingly small.

            What reason do I have to be able to type to you this message but the ISP who doesn't know me on a social level at all, the Tier1 IP provider that doesn't know I exist at all, the Slashdot administrators trying to make a living by advertisements for which I am merely one few bytes of data in their database?

            If it weren't for business, the price of tea in China would be irrelevant. But the fact is that by means of business, the price of tea in China is directly related to the price I see on the box of Oolong on my grocers shelf (who otherwise would have no interaction with me what so ever).

            I think you need to look up the word "praxeology".

            Bob-

        • by Anonymous Coward

          No doubt, a company that had poor controls may have improved them in order to comply with Sarbox. This does not mean that U.S. businesses in aggregate benefited from Sarbox. A law mandating a 45% increase in marketing spending might help some companies too, but it would cripple most others. Even companies with superior internal controls were forced by this perverse law to spend more money on internal controls.

          Ageed. My company kept track of how much time was being spent on SarbOx compliance. From the st

        • by benna (614220)
          Of course SarbOx is not profitable for businesses. If it were, it would already have been implemented before congress passed the law. The point is that the burdensome new procedures have positive externalities which outweigh the increased costs.
      • by Raul654 (453029) on Thursday May 11, 2006 @11:00PM (#15315152) Homepage
        I'm 100% in favor of bringing back the Glass-Steagall Act [wikipedia.org], a useful bit of post-Depression legislation that would probably have prevented Enron (or, at the very least, significantly reduced the overall damage). Glass-Steagall ruled that a company could not do both finincial analysis and investment banking, because it's a conflict of interest to be evalauting the same companies you have intestments in. Thanks to the Republicans, Glass-Steagall was repealed in 1999 (although, to be fair, Bill Clinton did sign the law repealing it).
      • by Quantum Fizz (860218) on Thursday May 11, 2006 @11:11PM (#15315196)
        Meanwhile, financial companies, especially hedge funds, are increasingly choosing to set up shop in London rather than New York/Connecticut to escape the burdens of Sarbanes-Oxley and SEC registration.

        Using your same logic, here in the US we should also repeal child labor laws, environmental regulation, and occupational safety laws, merely because many US companies will open shop in in other countries where there are looser pollution regulation, safety laws, etc. Think of how much business the US economy is missing out on due to these regulations pushed by 'liberals'.

        The scary thing is that a typical pro-big-business Republican would agree wholeheartedly with my paragraph, without sensing its sarcasm.

        • by Dachannien (617929)
          The thing is, the link between cost and (public) benefit for child labor laws, environmental regulations, and occupational safety laws is plainly visible, and in most cases the cost of compliance is proportional to the size of the business. Not so for Sarbanes-Oxley, where the cost of compliance is, in general, greatest as a proportion of revenues for smaller businesses than for large ones, and where the public benefit is practically undetectable for small businesses as opposed to large ones. It's getting
      • I think you're confusing the goal of the act with its actual ramifications. Sarbanes-Oxley amounts to a regressive cost of doing business. Small firms pay a disproportionately larger share of their revenues to comply: they have to hire a lawyer or auditing firm when they could have done the paperwork themselves in the past.

        When you write stuff like this, could you please also name the neocon website you're parroting it from? Your argument sounds a lot like the estate-tax debate, the rich defending thei

        • Stop saying 'companies' like every mom and pop grocery has to do this. SOX only applies to publicly-held companies. And publicly-held companies had to be audited by an external auditor, even before SOX.
          That's not fair, you are using facts and reasonable logic to prove your point.

          This is Slashdot, please return to using hyperbole, straw man arguments and ad hominem attacks.

        • Smallcap businesses are hurt by it. I work for a 300 people public company that develops software for businesses. Since Sox came into effect, the company spends as much money on accounting as they do on software development. The company has two choices now: grow rapidly so that the accounting overhead (4 million per quarter) becomes less significant, or go private.

          The enormous amount of regulations coming with Sox are chilling, and it simply is out of proportion for the damage small and midcap companies c

    • It also costs *us* (Score:4, Interesting)

      by Space cowboy (13680) * on Thursday May 11, 2006 @10:59PM (#15315146) Journal
      Because now, if there are *any* new features in an update to a program, the company who created it *must* charge for that upgrade. This totally changes how software is developed and marketed...

      Previously, if I had a program I wanted to release for profit, I would do the core features well, and add modules on around the side later, at extra cost. I might release interim patches for any bugs found in the field, and as a sweetener, upgrade some small functionality to get users affected by the bug back on "my side".

      Now, I can't do that. The only time I can have a free interim release is to fix bugs - no new features are allowed. I'm no lawyer, but this is (expensive) legal opinion. So the dynamic changes - in order for me to have the most flexible release policy, I'm *far* better off releasing bug-ridden software that does *everything* - even if it only does it badly. Following this path, I get a choice of how to proceed later (I can add functionality *by* fixing "bugs" (ahem) by actually making a serious attempt to provide the functionality I promised in the first place). I can gauge the market and give it away free if that suits my needs at the time.

      Now there's a downside to releasing bug-ridden software (and we're all aware of the arguments). The problem with this (responsible) attitude is that the collective consciousness of consumers today seems to not have a problem with buggy software - software crashes all the time, they're used to it, and it's a self-propogating meme of "what is normal". Responsibility don't pay.

      So, when I release software (under the usual constraints of "good,cheap,fast - pick any two") I'm being pushed in the direction of "cheap and fast" because there's no real downside to me, and I get a lot more flexibility with dealing with the resulting debacle. I can balance my budget better ("cheap") and I get to market faster ("fast"). The fact that it doesn't work so well isn't really an issue.

      That's what Sarbanes-Oxley has done for us.

      For the record, I don't release software - please direct hate-mail to /dev/null. But if I were a software company, I sure-as-hell would be looking for an upside in the SO legislation, and I don't see any other "good" routes...

      Simon
    • by jcr (53032) <.jcr. .at. .mac.com.> on Thursday May 11, 2006 @11:38PM (#15315321) Journal
      Sarbanes-Oxley is a *very good thing* - it exists to prevent another Enron

      No, it's killing a butterfly with a cannon. Because one company was run by a bunch of crooks, every other public company has to vastly increase their costs, which is money that isn't spent of improving their products, hiring more workers, or cutting prices to their customers.

      Let me point out that it was the market that brought Enron down, not the government.

      -jcr
      • Yes, Enron was brought down by the market. In fact, that's how pretty much every finincial scandal ends - the company that caused it implodes and the government is left to pick up the pieces. The point of SOX is to prevent a repeat performance by a company using the same not-quite-illegal/barely-illegal tactics that Enron used.
      • Because one company was run by a bunch of crooks

        Don't forget the banks and accountants and regulators who gave a wink, wink here and a nudge, nudge there. It wasn't just one bad company, it was an antire corrupt business climate which thought the Enron cowboys were doing a great job, thought it was pretty damn hilarious how they gamed the stupid California regulators and wreaked such havoc in the economy.
      • by JKConsult (598845)
        As has already been pointed out in another response to your post, Enron didn't create their mess all by themselves. Arthur Andersen, as both their auditor and their consultant, did as much, if not more, that led to Enron's downfall. But even if it had been Enron all by themselves (meaning that they would have had to present false books to Andersen, and cover up the existence of the shell companies [called 'Raptors' internally by Enron] when actual physical checks were made, which is much harder to do than
    • by Maxo-Texas (864189) on Thursday May 11, 2006 @11:41PM (#15315334)
      SOX has reduced my productivity by 75%.
      I spend the rest of the time (15 to 20 hours per project) filling out several forms that I didn't used to have to fill out, doing self-audits to confirm I filled out the forms, waiting for approval of my forms before I can go to the next step, etc.

      Meanwhile- the execs in my company can write a $20,000 check without even a counter-signature from another exec and much larger checks with a counter-sig from *one* other exec with NO required paperwork of any kind and they get paid literally millions of dollars while our stock has declined constantly in price for years.

      Why the heck sox means the "Massive Paperwork for Programmers" is beyond me.

      And then when we have a high priority project that a big executive wants fast-- we toss all the paper work out the window and backfill it afterwards (even putting links to empty documents that will be filled in later).

      Yea right- sox is a very good thing-- NOT. We already had laws against fraud. All we have to do is start ENFORCING them.
    • by EweLambGeo (714452) on Thursday May 11, 2006 @11:45PM (#15315353)
      I strongly disagree with this objection. Sarbox, IMHO, is the most poorly conceived and implemented piece of government regulation to come out of Washington since the Carter adminstration attempted to allocate gasoline deliveries at the retail level. In case you were not driving then, gas stations ran out of gas all over the US. It was awful, especially if you needed to get somewhere. What the SEC hath now wrought is a set of undefined requirements which it has told the entire American corporate world to go implement or be ... severly punished.

      While slashdotters may derive a justified modicum of rightously deserved glee in this state of affairs - who here hasn't been given like orders - the economic waste on the national scale is so hideous that it needs airing. Never before has so much money been wasted on useless butt-plate.

      The concept here is that corporate processes need to be audited independently to prevent fraud and malfeasance. Wonderful idea. What the SEC people had no clue about, however, was just how many processes there are churning away every day in a normal company. There are thousands! If you want to monitor the pain Sarbox is inflicting, subscribe to the alerts from CFO.com. For example, one company just found out it would have to pay its auditors - that's right, the people who failed to catch Enron's malfeaseance - $50,000 a year just to audit its employees vacations. That's not so much alone, but when you multiply it by everything going on in a company, the costs are absolutely humongous. And all of this money is going to the people who not only failed to prevent Enron but told them how to do it. Something is seriously wrong here.

      Proportionately, the costs for smaller businesses are much higher (typically 20x). This has an anti-technology bias that hurts all of us in technology and eventually the whole economy. Because our start-ups are small and Sarbox denies us capital, we will not be able to hire and develop. This is bad Kool-Aid.

      The supporters of Sarbox are: a) Big Labor - they are more successful unionizing big/old companies, fail miserably with high-tech startups, hate us, and actively seek to ruin us, b) Auditors - they make the money from this regulation, c) Regulators - from their perspective, regulation is always good and Sarbox means hiring many more of them.

      The losers are everyone else, especially us in the tecnhology sector. I'm developing technology that could make corporate treasuries more efficient by increasing their control of liquid assets. I cannot sell it because of Sarbox and all its distractions. Ironically, corporate treasuries are so involved in dealing with the worthless regulatory minutia of Sarbox that they cannot invest the time to evaluate systems that would actually improve their control of corporate liquid assets.

      I wish I could conclude this rant by recommending what we should do, but I am not as politically astute as our foes. All I can say is let's hope for the best and maybe someone out there in the political world will get a clue.

      • by Raul654 (453029)
        So what you are saying basically amount to - giving an honest accounting of a company is expensive? Ok, so be it. Companies that find a way to do this cheaply and effeciently will prosper (and have their standards adopted by others), and ones that don't will tank. And in the future, investors won't again have to worry about CEOs lying on balance sheets in order to cheat the market (at least not using the same bag of tricks that worked for Enron/Worldcom/Tyco/et al).
        • by synx (29979)
          I think the parent was fairly clear - you are not getting what you think you're paying for. You are _not_ getting a honest accounting of a business. Only the appearance of one. Remember, that the external auditing companies that are being paid for this stuff are the exact same ones that were complicit in the Enron thing.

          Some of the SOX stuff is reasonable - although most large companies are already doing that. But some of the other parts are more or less insane. Like the infamous section 404 - everytim
    • it exists to prevent another Enron

      The executives of Enron broke the law. Let me repeat, in case you didn't hear: the executives of Enron broke the law. As a law abiding citizen, who naturally obeys the law just because it is there, that's undoubtedly an alien concept. It certainly is to me. So I will say it again. The executives of Enron broke the law.

      Criminals do not obey the law. Sarbanes-Oxley won't prevent another Enron. It's just another law that criminals will ignore but which will punish the law-abid
      • You know, criminals used machine guns all the time in the 1920s and 1930s. And then they were outlawed. And you know what? You don't hear too much about criminals using them anymore. (There was that one out in LA in the late '90s but beyond that not much). So did outlawing the machine guns turn those criminals into law-abiding citizens? No, probably not. Did it limit the amount of damage they can do? Oh yes.

        With SOX prevent any future finincial scandals? No, certainly not. Will it limit the amount of damage
    • by aclarke (307017)
      The idea of corporate accountability is a good thing. The implementation of SOX in many companies is an utter nightmare.

      Large companies have the economy of scale to spend money and do a proper SOX implementation. For smaller companies, this is simply cost prohibitive. One company I worked at briefly left me sitting around for probably 30-40% of my day because there was no work "authorized" for me to do. I would go almost every day to my boss and ask for something to do and he would tell me straight up

    • It's my rough understanding that the bulk of SOX is to add a whole lot of layers to make sure the numbers balance and that you know who officially made what changes to numbers.

      Enron was about fraud by management. Fraud will find a way to trump any set of rules to the contrary -- except maybe moral and ethical, but those are pretty hard to quantify.

      Will SOX make it harder for another Enron to occur? Yeah, maybe. Will it prevent large scale corporate collapses from fraud? Not a chance. There will al
  • Too bad for them. (Score:3, Insightful)

    by Spazntwich (208070) on Thursday May 11, 2006 @10:30PM (#15315007)
    But laws like this wouldn't really be necessary if businesses had followed the laws in the first place, huh?

    Too bad it only takes a few bad apples to ruin it for everyone.
    • You might have a point if only the small minority of companies which broke the law were punished by this legislation, however even the innocent companies are being hammered.

      Sarbanes-Oxley is like shooting a machine gun into a crowd because one person there robbed a bank. But then any shit gets modded up on this site.
  • They're the executives of the companies. The act was designed to protect against their misdeeds. Moreover, the benefits can't exactly be measured in terms of dollars, because a large part of the act is preventive. That is, you can't measure what never occurred, especially when there is little statistical data from which to back up an analysis.
  • by Anonymous Coward
    SOX is a very heavy burden on small businesses that are public. The real winners under SOX are the auditing firms.
    • SOX is a very heavy burden on small businesses that are public.

      Note the emphasis. Most posts are just saying 'companies'. Kudos to you for saying _public_. If you want to get the windfall of an IPO, if you want to have stock in your company traded on an American exchange, you submit to the relevant regulations. It's not like there haven't been any cases of unchecked corporate malfeasance screwing over the small investor, have there? So, the costs are passed on through stock dividends (or less dire

      • The issue is that the cost of that "insurance" is too high.

        SOX auditors have picked waaaaaay too many nits. Partially this is because of ambiguous (or non-existent) guidance from the PCAOB. Partially it is execs being IT ignoramuses who believe Big 4 FUD. Partially it is seasoned IT folks and internal audit departments lacking a common language, not trusting each other, etc.

  • Not surprising. (Score:3, Insightful)

    by JKConsult (598845) on Thursday May 11, 2006 @10:33PM (#15315030)
    First, of course companies are saying this. Sarbanes-Oxley requires them to do things that they don't want to do, namely properly assess their controls and have the CEO and CFO officially sign off on financial reporting.


    But the real issue is that proper external financial reports aren't for the business (though they do help it, as long as the business pays attention to what they say.) They're for external users. And I can tell you right now that while banks who are looking to loan money, analysts who are grading performance, and investors who are looking to invest in a company's stock or bonds wouldn't mind seeing any costs cut, they don't think that the benefits are outweighed by the costs. They'll take the best information they can get, no matter what has to be done (within some modicum of reason.) And that's the point of Sarbanes-Oxley.

    In 2004, GE spent about $33 million on Section 404 compliance, and costs ran about the same in 2005, Ameen said.
    According to a quick perusal of GE's 2004 10-K, they had $20 billion in pre-tax income. I don't think $33 million is remotely too much to insure that that 10-K is correct.
    • In 2004, GE spent about $33 million on Section 404 compliance, and costs ran about the same in 2005, Ameen said.
      According to a quick perusal of GE's 2004 10-K, they had $20 billion in pre-tax income. I don't think $33 million is remotely too much to insure that that 10-K is correct.


      That turns out to be 0.16% of the total income. Not bad, though expenses generally tend to add up, I don't know what compliance to other regulations cost. I imagine GE can forgo a the operation of couple of their executive jets
      • Not bad, though expenses generally tend to add up, I don't know what compliance to other regulations cost.

        Expenses do add up, but this is one of the most necessary expenses around. If you can't trust the 10-K, what the hell good is it?

        Compliance (to accounting standards) generally involves a bit of staffing and their accoutrements (PC, office space, etc.), but it isn't typically more than that. Sarbanes-Oxley is more expensive than most to comply with, because it involves fairly detailed examinatio
  • UNIX Audit Tools (Score:5, Interesting)

    by dhanks (588795) on Thursday May 11, 2006 @10:39PM (#15315047)
    I have quite a bit of experience with Sarbanes-Oxley and UNIX compliance. One weak area is auditing root and shared account access. Generally the developers know the application account's password (like oracle or db2) and it's really hard to audit who did what. I created the tool Enterprise Audit Shell (EAS) which centrally logs shell access and sessions in an enterprise environment. Sessions can be snooped in real-time or played back at a later time. Each session is digitally signed and transmitted via OpenSSL. Project Site http://sourceforge.net/projects/eash [sourceforge.net] Support Forum http://eas.strchr.net/ [strchr.net]
  • by Bob_Robertson (454888) on Thursday May 11, 2006 @10:42PM (#15315065) Homepage
    Government regulation always increases costs, because the regulation has costs of compliance.

    Crooks don't comply, because they're crooks.

    Customers, that's us, end up with higher prices for the things we buy, and higher taxes to pay for all the new auditors.

    Martha Stewart goes to jail while the real criminals get away with what they've always gotten away with.

    Politicians get reelected for having "done something".

    To quote from the movie Spartacus, "I'll take a little republican [style of government, not party] corruption, along with republican freedom!"

    Want to really put the screws to "corporate executive" crime? Then eliminate the government granted limited liability that a "corporation" represents. Allow thereby the officers of a company to be directly liable for their decisions, their accounting practices, their performance.

    It's easy to follow the Big Lies handed down by the sensationalist press that don't want you looking at their own corporations and unions. S-O doesn't solve anything. It merely adds another layer of bureaucracy to the effort of getting anything accomplished.

    Bob-

    • The corporate limited liability is the only thing that has prevented our society from spiraling into a litigous mass of nothingness. At least, until we change our tort laws so that the maximum payout is the maximum input.

      So if you get sick from a hamburger, fine, you get your money back, but thats all, not 40 million dollars. Otherwise, corporate limited liability MUST stay.

      I'm ok with responsibility and fairness, provided it goes BOTH ways. Otherwise, we might as well just shutdown any reasonably sized bus
      • by cpt kangarooski (3773) on Thursday May 11, 2006 @11:31PM (#15315288) Homepage
        At least, until we change our tort laws so that the maximum payout is the maximum input.

        So if you get sick from a hamburger, fine, you get your money back, but thats all, not 40 million dollars. Otherwise, corporate limited liability MUST stay.


        That is the stupidest, most unjust thing I've seen today.

        The idea of tort law is to make the victims of a tort whole, and to discourage tortfeasors and other potential tortfeasors from harming anyone else similarly.

        If you get sick from a hamburger, then yes, I suppose you'd have a warranty claim for the burger having been defective, in which case the appropriate remedy would be the price of the burger.

        But that's totally beside the point that the burger made you sick, causing you to rack up medical bills, lose income because you can't work, caused you pain and suffering, etc. To even suggest that the price of the burger would be just compensation for what could be quite significant injuries, is simply cruel of you.

        In any event, limited liability merely refers to the liability of investors (who cannot lose more money than they invested -- i.e. if you buy $50 of stock in WidgetCo, and they go out of business, you only lose that $50) and that's it. The corporation itself is not shielded from liability, nor should it be. And its officers and management, in their capacities as such, are not particularly shielded either, though their concerns are less about tort liability and more about liability to the investors, to whom they owe a duty.
    • Quick note. Limited Liability afforded by corporate status doesn't protect the officers, it protects the owners (shareholders) from liability.

      However, I don't necessarily think that eliminating the corporate form is bad. I think it runs counter to a true free market (because corporations by design work to restrict real information about the marketplace). Combined together, I think that the Corporate Form and the increasingly unregulated markets (notice I didn't say "Free") that we have will eventually en

      • Ok, thank you. With that in mind I think it still counts, because if the shareholders knew they were also liable for their share of the companies actions, there would be far more accountability simply because "shareholders" would demand it.

        The supposed goal of Sarbox (great name) would be achieved by market forces.

        I also expect that, since where there is hazard there is profit, insurance companies would come up with a way to create "shareholder insurance". Interesting thought that.

        Bob-
    • Want to really put the screws to "corporate executive" crime? Then eliminate the government granted limited liability that a "corporation" represents. Allow thereby the officers of a company to be directly liable for their decisions, their accounting practices, their performance.

      Geez, bud, put down the Ludwig von Mises website for a minute, and do some research for a minute, to wit: http://www.s-ox.com/Feature/detail.cfm?articleID=1 743 [s-ox.com]

      "Sarbanes-Oxley attempts to achieve this goal by legislating: [...

      • "You sound like a bitter socialist (and I'm a leftie myself) who's so anti-est that nothing it does can be appreciated."

        No, I'm a bitter anarchist who watches as everything government touches turns to poop, which poop is then used by government to justify more intervention, which then turns to poop, which poop is then used...... etc etc etc.

        If you try something and it doesn't work, stop trying it. Everybody recognizes the simple logic of not hitting ones self in the head a second time, but somehow governmen
  • by maynard (3337) <`j.maynard.gelinas' `at' `gmail.com'> on Thursday May 11, 2006 @10:43PM (#15315067) Journal
    "That's the general consensus of a wide range of business executives and auditors who gathered Wednesday in Washington, D.C., for an all-day roundtable hosted by the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board (PCAOB)."

    Uhhh, so who is networkworld.com, why should I believe what the regulated have to say to the regulators, and why did the article summary assert what they stated to congress as certain truth?
  • SOX as Damage (Score:4, Insightful)

    by bill_mcgonigle (4333) * on Thursday May 11, 2006 @10:45PM (#15315073) Homepage Journal
    I appears Corporate America is viewing SOX as damage and attempting to route around it. The Charlie Rose Show had on a couple of the biggest private equity fund managers the other night and they were talking about companies which are moving headquarters and operations off-shore because of SOX. They hate it.

    However well-intentioned SOX is/was, if this trend continues, we don't get the SOX purported benefits, and we lose the economic benefits of these companies on US soil.
    • Re:SOX as Damage (Score:3, Insightful)

      by Shelled (81123)
      Doesn't work if their stock trades on an American exchange. I work in Canada for a Canadian company and we're obliged to adhere to SOx because our stock trades on Wall Street. Thank you Enron, for making your dishonesty international.
      • Don't ruin Canada's great reputation with your whining. SOX only affects activity within US borders. If the owners (shareholders) of your employer don't like complying with American securities laws, why did the board vote to trade on an American exchange? Vancouver and Toronto have exchanges, don't they? And they're so much better regulated and more secure than the American exchanges, why wouldn't you want to trade there?
      • Don't thank Enron, thank the US Congress for punishing you for what Enron did.
    • However well-intentioned SOX is/was, if this trend continues, we don't get the SOX purported benefits, and we lose the economic benefits of these companies on US soil.

      Working in an accounting environment, I see firsthand the enormous amount spent on Sox compliance. The OP's example only proves my assertion that the slimes that run the game will find new and novel ways to get their hands in the till.

      The Ken Lays of the world didn't get the big bucks from playing by the rules.
  • From my experience at having to deal with IT compliance with SOX for two different companies, I have to say that the only people made better off by SOX are the auditors and consultants....it's a shame they didn't have to pay for this law like normal corporations.
  • Costs to who? (Score:2, Flamebait)

    by plopez (54068)
    Sooo... tally up the cost of the Enron scandel:
    1) The company went under, costing investors billions.
    2) Some of the investors were people working for retirement, count up the cost of medicare and other public support they will need.
    3) The manipulation of the elect. market caused a number of bad side effects including lower competitiveness of businesses in the affected areas (e.g. California).
    4) Some business, I have no doubt, went out of business due to increased costs. Good ideas may have been lost, peop
  • is in spite of the complaining by companies in the Fortune 500, the relative costs of SOX are low for mega-corporations like General Electric compared to a medium-sized business looking to try and compete with the big guys. Just as many well-intentioned business regulations are designed to keep the biggest and the baddest companies from screwing the public, the biggest unintended consequence of most business regulations is that these same regulations stifle up and coming competition whose resources might be
  • GE's Section 404 controls cost: $33 million
    GE's Market Cap: $365 billion
    Percentage of Capital spent to make sure they're honest: .09%

    As a GE stockholder, I'm happy with that. I will always be willing to pay .1% to ensure I don't lose 100%.
    • Is GE the only company out there who has to comply with SOX? What about the companies spending up to 10% of their revenue for 404 compliance. Just as Wal-Mart can have economies of scale when doing retail operations, any megacorp has an economy of scale in complying with SOX. Excessive government regulation has a crippling effect on small businesses and medium-sized businesses that you never hear about from the sensationalist news outlets out there. These companies and their owners are invisible as far as t
  • 404 (Score:4, Funny)

    by tehwebguy (860335) on Thursday May 11, 2006 @11:11PM (#15315195) Homepage
    The SEC and PCAOB arranged the roundtable to solicit feedback about Section 404 of the legislation, which Could Not Be Found...
  • by Banner (17158) on Thursday May 11, 2006 @11:16PM (#15315218) Journal
    I've worked with sarbanes-oxley, it's a joke, and sadly the joke is on us. It really doesn't do anything good, it's just a knee jerk beauracratic response to increase the number of beauracrates.
  • boondoggle (Score:2, Informative)

    by eronysis (928181)
    I believe SOx was indeed well intended, however if you have ever dealt with these auditors you would quickly realize that in practice SOx ended up as a boondoggle to a few very large accounting firms. I have actually dealt with "auditors" who requested(upon me asking about where he was based and that I speak the language) I speak in spanish, as they were based in mexico city on contract...He then asked for a screenshot of /etc/passwd, not the file itself mind you a screenshot of a pwd at the path! Not that
  • The benefits those executives are counting don't include the cost of, say, Enron. Count a few dozen $BILLION collapses against the costs, and S-O looks pretty cheap. Not as cheap as ethics would make business, but there's no known way to inject that into capitalists.
    • But then in that case, really SOX compliance should be paid out of public tax dollars, perhaps capital gains tax, since it's something to protect the shareholders. Otherwise businesses will pass their costs on to their customers, when really maybe it should be the shareholders that should be paying.
      • Why should the public pay to protect the shareholders? That's exactly backwards. The shareholders should pay for their own protection. Public tax dollars pass the costs onto their customers, their shareholders, and everyone else, regardless of the degree of benefit gained from the protection. Meanwhile, the capital gains tax is being repealed, not earmarked for sustainable development. The really appropriate funding puts SOX costs on the corporation, like any other accounting, and would increase the capital
  • I didn't realize it was a profit-boosting initiative.

    Please....would someone in Washington think of the corporations' bottom line for once??!!!
  • I've had to follow after some of these consultants, since I work in a related industry. I've seen companies so scared to do anything that they're in process paralysis, because some SOX consultant was paid $250/hr to tell them they were going to jail in a handbasket if they didn't lock down everything that moved. Some listen when I tell them that all they have to have is good logging and a multiple-entity approval/decision tree, but some are just to shell-shocked. Unchecked Corporate greed has always been
  • by A nonymous Coward (7548) * on Friday May 12, 2006 @12:10AM (#15315460)
    I know far too many people who make excuses for Enron, saying they did nothing illegal, that California especially set itself up for disaster by deregulating only half the eletrical market.

    But you know what? There are a zillion things any of us could do every day that are legal but immoral. Enron had no morals. They may have had great legal advice on how to skirt the edge, but their own admissions in email and memo, show they knew it was immoral. When the wholesale price of electricity jumps from 3 sents to 300 cents and stays there for exactly one hour before falling back down, something is wrong, whether legal or not.

    Just as I have no respect for cops who complain about getting no respect when they won't turn in corrupt fellow cops, I shed no tears for business people who can't keep their own chicken coop clean.

    This is the price you pay. You fuck with the public long enough, the public will fuck you back. Hell yes, it may be bad for business, but what they were doing was worse for society. So lump it, business boys and girls. You clean up your act, police yourselves, and earn the repeal or reform of SOX. Until then, I rejoice in what it does. Society is better off with the scoundrels roped in. Even if that small section of soceity call business is suffering a bit, society as a whole is better off.
  • Main problem... (Score:4, Interesting)

    by sheldon (2322) on Friday May 12, 2006 @12:15AM (#15315475)
    Nobody knows what Sarbanes-Oxley means...

    I've had a lot of managers say we have to do such and such for SOX compliance. When I inquire as to more detail... Like what exactly, so I can make sure the solution fits within the requirements. I get blank stares.

    That's a large part of the cost. The law itself is not a bad idea. It's just nobody knows how to comply.
  • SOX Never Ends (Score:2, Interesting)

    by wirq_1047 (795277)
    My IT Consulting firm has a large client that hired a team of SOX Consultants to get them SOX compliant. Everytime they seemed to have checked off every item on the SOX Consulting team's list they were presented with a new list of items they must correct to be SOX compliant. Eventually they hired another SOX Consulting firm and had their suspicions confirmed that the first group was basically "inventing" reasons they were not SOX compliant to rack up a truly obscene number of billable hours.
  • by itzmejoey (621061) on Friday May 12, 2006 @01:58AM (#15315787) Homepage
    ...for the past 18 months, my biggest beef is that it does absolutely nothing to prevent any sort of catastrophe -- it just ensures that the catastrophy is logged in exquisite detail.

    As a developer, certain procedures and responsibilities have always rested on my shoulders. I'm used to it, and I rely on them to help me do a better job. However, with the advent of SOX compliance, so many layers of crap are added to my workflow that I end up spending 4 hours documenting a 20-second fix to correct a spelling error in a piece of code.

    If these new procedures were to give me any sort of confidence that my fix not only addressed the problem, but didn't cause any new ones, then I would be more open to accept them as part of my job. As it stands, though, it only extends the amount of time that potentially Bad Stuff(TM) takes to make it into production.

    Even with supposedly airtight SOX-compliant controls in place, any developer at my company can easily mangle production environments at any time. Here's why: one of the big things they started off with when implementing SOX controls was that if you were a developer, you shouldn't have direct access to production systems. So, they add a few layers in there. You, the developer, can't touch production, but you can write a script and give it to someone in a "responsible position", who can then run it in production. Problem is, the person who's supposedly responsible for the system often times has no clue what the script does -- even if they actually bothered to look at the script in the first place. They may ask you what it does, simply because they need to appear to be doing their job, but does it really matter what the answer is? They blindly run the script and send you the output. They don't know what the script does, so they don't know whether the output is valid. You tell them everything looks good. Everyone's happy.

    Doesn't matter whether you update a single row, or drop a table with 70 million rows -- no one involved in the process is going to actually take the time to look at what you're doing in order to determine that it does what you say it does. As long as you've convinced people you know what you're doing, you have free reign. The addition of SOX hasn't changed this. The only benefit (if you wanna call it that) I can see is that now, you've got a pile of documentation showing that 4 people assisted you in wiping out data that will take days to retrieve from tape. The only way that controls are worthwhile is if they truly prevent this sort of thing.
  • *sigh* (Score:4, Interesting)

    by JKConsult (598845) on Friday May 12, 2006 @02:04AM (#15315804)
    I'm making these comments in virtually every subthread, so I thought I'd just bring them all to the front.

    1) For those who are claiming that the implementation/specific requirements are too strict, could you give an example? I have had to do things required for SOX compliance (and I know of plenty of other things that my company, and others, have done), and I have to say, I have yet to see anything that I consider overly burdensome. And certainly not so overly burdensome that they outweigh the benefits of the intended effect of SOX: ensuring more accurate and honest reporting in filings by public companies, and ensuring that management is held responsible for what is in those filings.

    2) For those who are claiming that the original intent of SOX is wrong, could you please explain why you think so in those parameters? There are certainly downsides to SOX, but a million posts saying "SOX sucks" or "I have to do a whole bunch of extra things so that my company is SOX compliant" doesn't mean anything. First, obviously it doesn't provide any kind of example. Second, there's no reasoned logic as to why these downsides are worse than the upsides. Which leads me to...

    3) For those who are claiming that the original intent was good, but the implementation is faulty, again, could you provide examples? Personally, I feel that extra work for you (or your accounting department, or whoever) is worth it if it helps to ensure that 10-Ks and the like are as accurate as possible. There is certainly a point at which the expense to make them more accurate outweighs the benefit of that improved accuracy. But remember, as I pointed out upthread, these filings are not FOR the company, or even really FOR the government (nearly every company has two sets of books, one for tax purposes and one for annual reports); they're for you, me, and every other person (and institutional investors) trying to decide whether investing in that company, be it through stocks, bonds, or any other avenue, is a good investment. The purpose of these filings and the role of the government in ensuring the accuracy of those filings is to make sure that investors have as much (and as accurate) information as possible. This is a good thing. If you'd like to argue that it's not, I (and probably others) will be happy to do so. If you're simply trying to point out that SOX doesn't fulfill its intent, then please, please say WHY you think that, and please give some thought to how much more work you would be willing to put up with, and how much expense you think is acceptable for a company to incur, to help the markets get better information.

    4) Finally, there is a very interesting argument against SOX that is getting ignored upthread. SOX is definitely a regressive expense. Small businesses are paying a higher percentage of their revenue (or pre-tax income, if you want to be pedantic) than larger companies. Is this fair? What, if anything, can be done to alleviate that problem? What slope of regression (I'm probably butchering this terminology-wise, but I think you know what I mean) is acceptable to you, assuming you believe that SOX is otherwise a net benefit?

    On the whole, obviously I am in favor of SOX. I wholeheartedly agree with the thought process behind it, and in my experiences dealing with it, I haven't found anything to change my mind. If you disagree, let's talk about it. This is a very, very important issue. But let's talk about it rationally and logically. Throwing out "it sucks", "I hate SOX", and "It doesn't work" don't do anything to further the discussion.

    And yes, I am a longtime Slashdot reader, and I know that it's sometimes hard to find real, thought-out discussion. But we can certainly try for it.

Steve Jobs said two years ago that X is brain-damaged and it will be gone in two years. He was half right. -- Dennis Ritchie

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