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Sarbanes-Oxley Fifth Anniversary Marked by Problems

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Sarbanes-Oxley Fifth Anniversary Marked by Problems

Sarbanes-Oxley - Big Cost, Little Benefit

Washington, D.C., July 25, 2007 Tuesday,— July 31st is the fifth anniversary of President Bush's signing of the Sarbanes-Oxley bill aimed at protecting investors from corporate abuses. Unfortunately, the law has resulted in harm to investors, preventing them from growing wealth.

A recent report by the Competitive Enterprise Institute, SOXing It to the Little Guy: How Sarbanes-Oxley Hurts Small Investors and Entrepreneurs, identifies major flaws in the law and explains why the law must be overhauled completely. Among the problems with Sarbanes-Oxley identified in the report:

  • Section 404, the law’s most costly provision. "Section 404 forces auditors and executives to sign off not only on the accuracy of a company’s financial statements, but also on its ‘internal controls,’ a vague term which the law does not define," Berlau explains.
  • Section 301 is another problem. It "mandates the one-size-fits-all requirements that only ‘independent’ directors sit on companies’ audit committees, intruding on the cohesiveness and efficiency of different types of boards."
  • Section 201 "prohibits a company’s auditor from performing any other services for the firm,” a prohibition which has “caused costly duplication of many accounting tasks."

The author, John Berlau, Director of CEI’s Center for Entrepreneurship, proposes an alternative stock venue that is free of Sarbanes-Oxley and other SEC requirements, in which fraud would still be punished but investors could choose how many preexisting rules are necessary.