Lesley H. Howe has a unique perspective on Sarbanes-Oxley, largely because he spent more than 30 years in public accounting pre-Sarbox, and he has served on multiple corporate boards post-Sarbox. In an article posted Thursday at San Diego Source, Howe notes, "To say that SOX got off to a bad start is an understatement." I think we'd all agree.
As Howe points out, the legislation was enacted and companies and auditors were required to implement it with very little guidance or help. Doing so required much more time and money than anyone expected. The PCAOB told audit firms they were "too cozy" with their clients, so they stopped consulting and focused only on audits. The firms were also understaffed, so audit fees soared.
Six-plus years later, however, Sarbox compliance efforts have moved more toward business as usual. There is greatly improved guidance on implementation. Audit firms have gotten back to consultation as well as audits, and staff sizes are commensurate with the tasks they must complete. Competition for clients has reentered the equation as well, Howe says, so fees are more manageable.
Moreover, corporate directors -- particularly audit committee members, he says -- are better informed and not afraid to ask "probing questions." There are new independence and "financial literacy" requirements. Today's directors remain engaged in the governance process better than their predecessors did.
All in all, Howe says, "I'm not sure that the adoption of SOX was cost justified, but public company boards and their committees are better because of it."
There are some who would debate that point, but I think Howe makes it well. It should be made more often.