Will Changes in Congress Bring Changes to SOX?

With the support of Rep. Nancy Pelosi D-Calif. and congressional members from both parties, pressure is on to revamp Section 404.

The burden of complying with Sarbanes-Oxley (SOX), and in particular, section 404, which addresses the establishment and auditing of internal financial controls for public companies, is shaping up as a hot topic post midterms.

Estimates that the cost of compliance will be as high as $6 billion this year and is having a negative impact on the market has caused representatives from both parties to suggest the rules may need to be re-examined. Among them: President Bush; Vice President Dick Cheney; Treasury Secretary Henry Paulson; Rep. Barney Frank (D-MA), who will be chairman of the House Financial Services Committee in the new Congress; Sen. Chris Dodd (D-CT), who’s in line to lead the Senate Banking Committee; Sen. John Kerry (D-MA); and Sen. Charles Schumer (D-NY).

In addition, lobbyists are putting pressure on the U.S. Securities and Exchange Commission (SEC) to ease those cost burdens, and several bills have already been introduced in Congress with the same aim. The U.S. Chamber of Commerce has convened a group of business associations, called the Association Work Group on 404, whose representatives meet once a month to talk about developments and establish a set of common principles. Another group, the Free Enterprise Fund, has filed a lawsuit challenging the constitutionality of the creation of the Public Company Accounting Oversight Board (PCAOB), the organization created to regulate accounting firms in their roles as auditors of public companies.

In response to these concerns, the SEC convened an advisory committee on smaller public companies and has postponed the date that these companies must comply to July 2007. They are also working on developing easier guidelines for management.

Look for more in-depth coverage of the issue in the Winter 2006 Issue of CRO Magazine, “Backlash Against Sarbanes-Oxley” by David Raths.