Ron Paul Lends His Views on SOX 5 Years Later
Posted on July 18th, 2007 by Audit Trail »Permalink
Audit Trail recently sat down with 2008 Presidential Candidate Ron Paul, R-TX, to get his views on Sarbanes-Oxley 5 Years Later, as one of only three members of congress at the time to vote against the bill.
Audit Trail: It has been five years since the passage of Sarbanes-Oxley. Has your initial position on the legislation changed, or do you still believe it was an overreaction to a real problem?
Ron Paul: The damage inflicted on American businesses and capitol markets by Sarbanes-Oxley has strengthened my conviction that this legislation should be repealed. In 2000, nine of every ten dollars raised by foreign companies were raised in the United States. In 2005, nine of the ten largest offerings were not registered in the United States, and, of the largest twenty-five global offerings, only one took place in the US. The number of public companies going private increased from 143 in 2001 to 245 in 2004. Sarbanes-Oxley is a, if not the, major reason companies are fleeing America’s capital markets. Furthermore, according to some estimates, Sarbanes-Oxley has cost the very investors the law claims to protect at least $1.4 trillion. How could anyone regret voting against such a harmful bill?
AT: What has been most surprising to you as you look at what has happened since Sarbanes-Oxley was enacted?
RP: The solid consensus that today exists among Representatives of both parties and the regulatory bodies charged with enforcing Sarbanes-Oxley is that this legislation, which Congress overwhelmingly passed and the administration heralded as a great achievement, was poorly drafted and that small businesses need relief from the unintended consequences of the law.
AT: Do you think the recent changes that the SEC and PCAOB have made with respect to SOX 404 will be successful in easing the burden of compliance? Do they go far enough?
RP: No, the Securities and Exchange Commission’s new regulations implementing Section 404 do not go nearly far enough in lifting the unjustified burdens Sarbanes-Oxley imposed on America’s economy.
Sarbanes-Oxley expert John Berlau, director of the Center for Entrepreneurship at the Competitive Enterprise Institute, said of the new rule that “Simply proclaiming that audits should be ‘risk-based’ won’t make them so, as long as the other mandates of this auditing standard remain in place. Auditors and companies will still face potential liability for not looking at every last process that could be deemed an ‘internal control,’ even if it has little relevance for shareholders. And the big accounting firms will also still have the big incentive to find every last ‘internal control’ they can audit and bill for.”
Of course, the regulators can only go so far in relieving the burden of Sarbanes-Oxley; it is up to Congress to correct the mistake it made when it rushed this unconstitutional, anti-prosperity, and anti-liberty bill into law.
AT: Is Sarbanes-Oxley still top of mind for you? Do you follow developments closely?
RP: Reform, or even repeal, of Sarbanes-Oxley remains one of my top priorities. As a member of the House Committee on Financial Services, I intend to continue to be an active participant in the debate over Sarbanes-Oxley and similar legislation.
Ron Paul is a 10th-term Congressman from Lake Jackson, Texas, a physician, and a candidate for the 2008 presidential election. He has represented Texas’s 14th congressional district in the U.S. House of Representatives since 1997 and represented Texas’s 22nd district in 1976 and from 1979 to 1985.
Tags: Ron Paul, SOX, SEC, Section 404, Sarbanes-Oxley
July 18th, 2007 at 12:04 pm
If a public company can not have effective, systematic and discipined approach to Corporate Governance, there is no reason for SEC to allow them to play with public money.
The recent guidelines from SEC, PCOAB and COSO for Smaller corp. - abundantly clarifies and simplifies the concept of design, evaluation and assessment of internal controls, which could not be understood by CFO’S and controllers, and they lavishly spent public money for still not implemented internal controls, unfortunately misled by public accounting firms.
It is unfortunate that public accounting companies made fortune out of such a simple act by mileading all.
July 19th, 2007 at 6:19 am
Public companies are NOT playing with public money - there is no such thing as public money. It’s either money held by private investors or money stolen from private investors by the government in the form of taxation (which is not invested in public equity markets - at least not yet). Ron Paul is exactly right about this - personally I hope he becomes President and abolishes the SEC as well!
July 19th, 2007 at 6:28 am
Rep. Paul is absolutely correct. In the field of technology, small private companies are now opting to sell to large comglomerates vs. going public. Just think, if SOX was around 10 years ago - there would be no Microsoft, Apple, or any of the like. They all would have opted to sell to IBM.
July 19th, 2007 at 6:45 am
As someone who complies with SoX controls (thankfully a small part of my job) for a large corporation, I can tell you my view. The people who audit our controls have very little ability to actually understand our business. We spend huge amounts of money for ineffective over-sight.
Trust me. People who set their minds on Enron-like fraud will be able to get by these regulations. We’ve blown over a trillion dollars for little, if any benefit.
July 19th, 2007 at 7:11 am
Sox is overkill for a handful of CEOs (Enron) who screwed up. The problem with Sox is it makes a bunch of BS rules that go all the way into the IT department.
IT didn’t mess up. Programmers aren’t stealing millions of dollars. Yet there’s a bunch of red tape we must go thru in order to work.
It’s a joke, which is why I tell everyone not to go into IT.
And that’s why many companies are going private. Why do you think they’re doing stock buy backs. Yes, it’s to make the stock go up, and they don’t have any other ideas for spending profits. But the main reason is so they can go private.
Do away with SOX.
July 19th, 2007 at 7:13 am
Dr. Paul is an expert economist, one of the very few in Washington who truly understands the concept of unintended consequences.
ANY intervention by government in the economic affairs of the people must always have unintended consequences that are contrary to the intent of the law.
I believe that one of the reasons the US economy is in such deep trouble is the SOX law. We need a free economy. I support Dr. Paul’s run for the White House. He is the only candidate who truly understands the underlying problems in our economy and our foreign policy.
July 20th, 2007 at 1:13 am
As a now retired CPA, I totally agree with Dr. Paul’s position.
Over the course of my career in public accounting, ever increasing government involvement in public accounting virtually destroyed the value of the profession. Instead of focusing on real substance, auditors now spend endless hours assessing the vague concept of internal control and compliance with government regulations.
The inmates truly are now running the asylum.
July 20th, 2007 at 2:35 pm
As a recent graduate in the field of accounting and a new hire at a big accounting firm I believe everything Ron is saying. The auditors, I will tell you first hand have had countless troubles with SOX. Throughout my classes at university we have discussed SOX and its implications. Ron Paul is exactly right!!! Do the research find the problem and fix it… government should get out of the way and the problem with be fixed.
July 25th, 2007 at 7:29 am
[…] On behalf of all technologists, John Dvorak calls for a total repeal of SOX. Perhaps he should call the Paul campaign to kvetch. SOX continues to generate controversy and discussion, which is healthy. Yes, let’s air our perspectives, peeps. Dvorak, as technology geeks know, has been sharing his insights on all things tech for more than a few years. Sigh. Jim Clark agrees with Dvorak’s SOX perspective too, we assume. Not to be contrary, BUT unless there is a major shift in policy SOX isn’t going to be tossed in the trash anytime soon. So, let’s change the tenor of the discussion and talk about how technology can assist in SOX compliance so that more fierce new companies can get going — and our big guys can stay ethical. For instance, see the Steve Elliott piece on IT security. A huge investment in compliance is out there, and while execs might want it to go away, leveraging that investment across business functions while reducing recurring costs for compliance seems the wisest solution. Or no? Anyone wanna join the fray? […]
July 26th, 2007 at 6:43 am
The discussion is quite interesting, albeit a bit weighted against SOX. Perhaps an analysis of all SEC fines levied and collected since SOX was passed would provide another data based way to analyze whether or not SOX has provided value. Or an analysis prepared of how many companies have restated their financial statements as a result of internal control findings. Regarding the data provided by Ron Paul for public offerings within and outside of the U.S., maybe the reason new money is seeking alternatives is the result of more than just the introduction of SOX. On a global playing field, the U.S. will be sharing more than manufacturing. It will also be sharing other pieces of the economic engines that run most developed societies. Also, it is unlikely SOX will ever go away completely. Afterall if organizations were inclined, without legislation, to “find the problem and fix it” there would not have been an Enron, Global Crossing, and a host of others. Public companies are profit driven, not necessarily ethically driven. How many annual bonuses are based on compliance? I agree the best path forward is to maximize an efficient execution of SOX requirements, including the use of those with inside knowledge of the business financial statements. If this means migrating the SOX audits away from inexperienced outside auditors, whose primary goal is to gain experience and knowledge, to a more experienced senior [i.e.knowledge based] auditor base then so be it. The things that are currently broken with SOX can be easily fixed with the management of how it is being executed. Let’s not scrap the legislation that is driving the effort. Let’s just modify the execution of the requirement to meet the needs of all constituents.
August 23rd, 2007 at 8:07 pm
It’s ironic that Enron received a waiver from the government to use their unusual accounting methods that got them into so much trouble in the first place.
August 25th, 2007 at 6:39 pm
Gentlemen, gentlemen, what are you thinking? Sox has overwhelmingly been accepted and applauded by pundits and investors alike. Most ‘thinking people’, think its a good law. What silly nonsense, hands wringing the entire way, oh we never would have had an apple or a microsoft if that evit Sox was there 10 years ago. Such boloney! Sox requires multimillionaire executives to be responsible for their corporate balance sheets. RESPONSIBLE. That means guys like Kenneth Lay can’t do the olay when the suffing hits the fan. As for all the corporations abandoning the US Capital markets in favor of (what?) Europe? People PLEASE! Without a SOX type apparatus over there, the same Enron Worldcom mischief will ensue. Let them leave - they’ll all be back. By the way, Canada also has a Sox like law on their books - enacted after 2002, so they had plenty of time to think about it. We’re in a digital age, with digital products and digital money. Times have changed! We need an IT Audit attestation function to keep our companies honest. Lost at the track record before Sox! Do we really think some big mean auditor dreamed the need for Sox up? Looks at the lives of people ruined by Enron. Pensions evaporated. Lies, deception. Stealing energy from California. Are you folks even a little bit knowledgeable about Enron?, and how it came to be? THERE WAS NO ONE RESPONSIBLE FOR THE LIES. Why the heck wouldn’t they try that subterfuge. They could NEVER do this under Sox. And by the way, SOX doesn’t require the auditors to look for “every little internal control and bill for it”. It only applies to internal controls affecting the financial statements. If you guys really want to get rid of SOX, I strongly suggest you learn something, even just a little bit, about what your griping about.
August 25th, 2007 at 6:47 pm
Oh, and Ron Paul - is that your name? Guess what? Never heard of ya! And you’re running for president? I knew a fellow that ran for president. A guy from South Dakota. I asked a political insider why the heck would George run for president, when he has to know his time has past and he has absolutely no chance. He told me “there’s a lot of money to be made just running for president. You go on the lecture circuit, you sell some books maybe, and you get to keep all the contributions you don’t spend.” I thought that was very interesting when I heard that back in the late 70’s. I wonder if it would still apply today. My advice Ron, enjoy being an anonymous congressman. You get a nice office, and if you stay in office for 20 years a nice pension. But president? No way Jose.
August 25th, 2007 at 7:03 pm
The numbers exist regarding the substantial cost of implementation and compliance of SOX, but the long-term benefits are just now beginning to present themselves. According to a 2007 study conducted by Oversight Systems, a survey company that performs polling research on business issues, 41 percent of financial executives report that SOX builds overall confidence in the market, and 37 percent report that SOX increased shareholder value because investors know their company is operating ethically.
August 25th, 2007 at 7:04 pm
An excerpt from CFO.com is here:
“While Enron, WorldCom, and Tyco offer the marquee examples of CFOs brought down in the past five years of legal action against accounting abuses, a report issued by the President’s Corporate Fraud Task Force calculates that at least 53 finance chiefs have been convicted since 2002.
In what is becoming a great year for fifth anniversaries of corporate enforcement activity, the tally of convicted CFOs appeared in the task force’s review of its own first five years in business. It said that there have been 1,236 convictions in all in such corporate cases, including 214 chief executives, 23 corporate counsels or attorneys, and 128 vice presidents. The task force gave itself significant credit, noting that it “has compiled a strong record of combating corporate fraud and punishing those who violate the trust of employees and investors.”
At the end of the day, there has been progress in keeping the US financial markets safer for investors. This is an important accomplishment to say the least.
October 4th, 2007 at 4:24 pm
The problem, William, is that the cost of Sox 404 is substantially disproportionate for smaller companies. According to the report from the SEC Advisory Committee on Smaller Public Companies, in 2004 U.S. companies with revenues exceeding $5 billion spent .06% of revenue on SOX compliance, while companies with less than $100 million in revenue spent 2.55%.
In fact, this concern is UNANIMOUSLY felt by the Senate, as expressed in the passage of the Dodd-Shelby Amendment, which mandated that the SEC and PCAOB proceed with SOX implementation with every effort to reduce the financial burden on small business.
In response, the SEC and PCAOB issued new guidance, but a) did not push back the 2008 deadline for smaller companies to be in compliance with that new guidance (doesn’t it seem reasonable to give companies a full year to operate under the new guidance?), and b) offered only anecdotal substantiation of their claim that the new guidance will reduce compliance costs for smaller companies (and many of the experts don’t think it will, as evidenced by the public comments).
The House Committee on Small Business felt that the SEC and PCAOB needed to provide an empirically based cost analysis and push back the deadline to allow for such a study to be done and for companies to have a trial period under which to practice the new guidance before requiring compliance.
In a congressional hearing, the SEC and PCAOB basically told the committee, “We don’t have to and we’re not going to.”
Given the current state of the economy and the centrality of small business to it, this is not a place we can afford to be wrong as a country.
Maybe there’s not widespread support for outright repeal of Sox 404, but everyone who knows anything about (and who gives a damn about) small business — the SBA, House Small Business Committee, U.S. Chamber of Commerce, and the entire Senate — thinks that the current implementation has problems and that the SEC and PCAOB have not taken adequate steps to reduce the cost of compliance for smaller companies.
The costs and obligations should be more proportionate to the risk. And we simply have to do something to lower the cost of compliance for smaller companies else we end up with a huge gap in the ability to raise capital — and for the general public to participate in supporting entrepreneurship and reaping the rewards from it.
October 4th, 2007 at 4:30 pm
“At the end of the day, there has been progress in keeping the US financial markets safer for investors. This is an important accomplishment to say the least.”
That’s a myopic view. At the same time, there’s been a significant impact on the profits of smaller public companies. What about their investors? What about the potential economic impact of denying capital from willing investors to growth-stage entrepreneurial firms? What is the net impact on our economy if the number of firms that can access the public capital markets is cut in half, or a fourth, or worse?
Protecting investors is important, but you have to think systemically. It’s just not that simple. There are negative financial impacts to some investors because of SOX. And there is significant lost opportunity from good companies that might have gone public if it weren’t for the cost of compliance.