Despite Clamor for Reform, Studies Say Sarbox Is Working

Lora Bentley

We can't help but chuckle a bit as the Sarbox pendulum swings the other way yet again. For weeks we've seen nothing but stories about how Sarbanes-0xley is a mess and should be scrapped -- or should at least undergo massive revision.

 

This morning, what do we find but two studies saying that the controversial corporate reporting law is doing its job and is actually good for businesses, both large and small?

 

The first, conducted by AuditAnalytics, found companies that were clients of the eight largest audit firms filed only 424 restatements in the first half of this year, which is a 31 percent drop from 2005 numbers. A commentator for the Kansas City Star posits that the change results from the fact that the audit industry is now reviewed by the Public Company Accounting Oversight Board rather than resorting to peer reviews that were often too lax. Without Sarbox, of course, the PCAOB wouldn't exist.

 

The second, from MIT Sloan Assistant Professor Ryan LaFond, concluded that Sarbox is good for businesses because it results in lower cost of capital. Looking at companies with proven, established internal controls and companies that had beefed up previously inadequate internal controls as opposed to companies that were not Sarbox-compliant, LaFond found that those who "remediated" the problems with their internal controls saw cost of capital drop by as much as 150 basis points.

 

Tomorrow we'll probably see more stories slamming Sarbanes-Oxley, but these studies at least add another angle -- not to mention more information -- to the debate.



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