Call off the auditors!

Amy Scott Nov 10, 2006

KAI RYSSDAL: Seems there’s a winner in the fight to scale back one of the toughest post-Enron reforms. The Wall Street Journal reports today the Securities and Exchange Commission will give the business lobby what it’s been waiting for: A softer version of what’s known as Section 404. From Los Angeles, Marketplace’s Amy Scott explains.

AMY SCOTT: It’s not that Section 404 is so outrageous. It’s the part of the Sarbanes-Oxley legislation that requires companies to assess their financial reporting controls and then have those controls audited. Businesses say it’s the way it’s being interpreted that’s so onerous. William Carney teaches law at Emory University. He says he knows one company that planned to go public. Its audit took so long it missed the market window completely.

WILLIAM CARNEY: The auditors are taking it as, if you don’t have good controls over your pencil supply, you’re not complying with Sarbanes-Oxley.

The SEC is expected to issue new guidelines next month that may relax audit standards and reduce the burden on smaller companies. An industry group estimates businesses spent nearly $4 million on average last year complying with 404. And critics say the cost and the headaches are driving companies to take their business elsewhere.

An oft-cited statistic? Just three of the top 20 initial public offerings this year took place in the U.S.

Barbara Roper is director of investor protection at the Consumer Federation of America. She says Sarbanes-Oxley, or SOX, isn’t the only reason some foreign companies choose London over New York.

BARBARA ROPER: These are not companies that meet basic U.S. listing standards with or without SOX. You know, by the same token, Chinese companies that are doing IPOs today go to Hong Kong. They don’t have to list in the United States anymore, and repealing SOX wouldn’t bring them back.

If businesses can claim victory on Section 404, they may have a harder time pushing broader changes to Sarbanes-Oxley. With Democrats taking control of Congress in a few months, the business lobby may have fewer advocates on the Hill.

I’m Amy Scott for Marketplace.

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