As subscribers know, Compliance Week is constantly tracking critical issues for legal and financial executives at public companies. And for the last six years, much of our coverage on the financial side of the house has dealt with fallout from The Sarbanes-Oxley Act, particularly Section 404. Much of that coverage has focused recently on how to comply, or how to do so more efficiently; however, occasionally it’s worth remembering why we comply as well.
Our two front-page articles this month play off a grand theme Compliance Week has noted many times over the years: As much as Corporate America may disparage it, disclosure and transparency—via Sarbanes-Oxley or the original Securities Acts—actually do work. Our lead story reports that audit fees at large companies rose only 3.2 percent last year, the lowest jump in modern memory, barely keeping up with inflation. Directly beneath that article is the tale of material weaknesses at large companies—or the lack thereof. We examined more than 400 companies in the Standard & Poor’s 500 to tally up material weaknesses they disclosed. Of that sampling, 11 companies confessed a grand total of 15 material weaknesses.
Just for perspective, when Compliance Week last did a study like this two years ago, we documented hundreds of companies disclosing nearly 900 material weaknesses. I won’t even get into prior stories about audit fees; suffice to say, I had the headline “Audit Fees Continue to Soar” as a short-cut on my keyboard for a long time.
The broader story here hinges on another fact we published in May: Financial restatements started falling in 2007, after marching upward year after year for nearly a decade. In fact, for large companies specifically, restatements started falling in 2006.
Stronger internal controls; fewer restatements. Now, we can all debate whether the data show companies actually have stronger controls, or whether AS5 is actually working, but the bottom line is a net positive for public companies. Despite all our complaints that SOX compliance is a pain (and many of those complaints are very valid), we should remember that this is the path that we supposedly wanted to be on.
Compliance Week will keep providing more help and more resources to manage SOX compliance, certainly. But at the end of the day, companies can achieve compliance, and it’s worth the effort.
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I'm sure many Compliance Week readers have had dealings with the Department of Justice or the scores of other federal and state enforcement agencies in this country. Some of you may even be—how shall I put this?—personally acquainted with running afoul of the regulatory enforcement system.
Starting this month, Compliance Week will be paying even more attention to the enforcement beat. In our Enforcement and Litigation section, you’ll see our latest columnist, Bruce Carton: former staff attorney for the Securities and Exchange Commission, former head of securities class-action services for Institutional Shareholder Services, former securities litigator for DLA Piper, and all around guy-in-the-know on these matters. Carton has written for Compliance Week in the past, but you’ll find the first of his now-regular columns on pages 32-33, where he examines the SEC’s laudable (yet completely impractical) goal of cracking down on false market rumors.
Compliance Week will be devoting even more attention to enforcement and litigation matters in the future, both in our news articles and our online resources available to subscribers. Like it or not, regulatory enforcement is a growth industry in this country right now. Handling that is a bigger part of your job, so helping you handle it is a bigger part of ours. Stay tuned.
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