Huhh, Guffah, Hurmph, So Much Mumbling and Complaining

There has been much ballyhoo of late in the news about Sarbanes Oxley, with phrases going round like rolling-back and unconstitutional. Damn this over-reaching and intrusive government. Phooey on the monitoring and moderation of capital markets. I have to think this is similar to the whining that accompanied the Security Exchange Act of 1934, or the Foreign Corrupt Practices Act of 1977, and every other piece of legislation that has sought to enhance transparency in the financial markets.

I would certainly feel different if Enron, HealthSouth, WorldCom, Waste Management, and Adelphia were simply isolated cases. Maybe these were just a few simple cases of a few bad apples spoiling it for the rest of us. But this doesn’t seem clear, even as the Enron trials persist so many years later. The idea that we did nothing wrong at the senior executive level rings of at least criminal negligence, even if the charges were dropped. How is the average, casual investor ever to understand all this dancing and doubletalk?

Simple: they shouldn’t have to figure it out, and now the SEC and PCAOB are keeping close tabs on things. Efficient markets and economic theories aren’t effective in the face of fraudulent financial reporting and blatant abuses of the accounting rules. Since we can’t legislate morality, our elected representatives have done the closest possible thing in setting out very strict guidance on corporate governance with clear expectations of management in monitoring the business.

Had we cleanly passed through Year 1 filings, it would seem like much stirring of the pot for not. But this wasn’t the case. Companies are finding a wide variety of issues in their businesses, and all this pain, all this suffering around implementing internal controls and monitoring business practices is really just the price of catch-up for decades of apathy. Such are the costs in the absence of maintenance.

I am fully in support of reducing the invasiveness of testing as organizations demonstrate their capacity for risk management practices, and believe this is contemplated in the recommendation for more risk-based auditing that was discussed last summer.

Instead of griping about the pain, I wish those with such energy would throw themselves at improvements to the evolving interpretive guidance instead of the multitude of gyrations and complaints.