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Global Audit Firms Are Lobbying to Dilute Sarbanes-Oxley Reforms

118 points by frgtpsswrdlame 9y ago

chollida1 9y ago
One of my good friends was an investment banker who specialized in IPO's from 2000 to 2011. When ever I asked him about Sarbanes-Oxley chilling IPO's he would always say that the only people who claim the legislation slowed down IPO's were people on chat boards who had no relation to the process at all. From an auditors perspective it might raise some complications but from a companies perspective, it just codified rules that almost all public companies were already doing. I mean, even on hacker news, you'll find people parroting the sentiment that Sar-box slowed down IPO's but they never really seem to be able to identify just why, or what specific rule it is that is keeping companies private. n Its always some non specific thing they point to, like more regulation or liability of C level executives. I mean the retort is probably what percentage of public companies have been brought private strictly because of this rule or how many executives have been sent to jail under this rule. The below article is from 2012 but it lays out my point pretty well I think: http://blogs.reuters.com/alison-frankel/2012/07/27/sarbanes-oxleys-lost-promise-why-ceos-havent-been-prosecuted/ http://blogs.reuters.com/alison-frankel/2012/07/27/sarbanes-...
- logicallee 9y ago
  Reminds me of my good lawyer friend who says high legal fees don't impact startups at all. /s Here in the real world Sarbanes-Oxley has a huge burden on actual auditors and accountants at public companies. It's not some afterthought, the burden on companies is huge. You can hardly talk with a controller/auditor without hearing about it. Why would anyone make that up? It's just a record keeping and reporting burden, it's just a nuisance. Nobody gets anything out of exaggerating that nuisance.
  - koolba 9y ago
    And it has a huge impact on the bottom line of consultancies and external auditors. SOX, and more recently Dodd-Frank, has been a cash cow for those groups.
- arcanus 9y ago
  I'm not sure I agree. I think that this has consolidated the IPO market to only a few major banks that are capable of acting as underwriters. Empirically, the number of IPOs in the USA has dropped, and the size has increased. So the data is consistent with there being a larger regulatory burden on businesses going public.
  - chollida1 9y ago
    > Empirically, the number of IPOs in the USA has dropped, and the size has increased. So the data is consistent with there being a larger regulatory burden on businesses going public I'll agree with the first sentence. However it is not anywhere near enough to imply the second sentence. And lots of smart people agree... https://www.bloomberg.com/view/articles/2015-06-24/where-have-all-the-publicly-traded-companies-gone- https://www.bloomberg.com/view/articles/2015-06-24/where-hav... > The study also looked into the old argument that "regulatory and legal changes in the early 2000s, including Regulation Fair Disclosure ('Reg FD') and the Sarbanes-Oxley Act ('SOX'), made it more expensive" to list. These played little or no role because the decrease in new listings was "well on its way before these changes took place." At worst, the regulatory burden accounts for only a small portion of the decline.
  - Dwolb 9y ago
    >Empirically, the number of IPOs in the USA has dropped, and the size has increased. The empirical evidence could also be explained by other factors such as increases in availability of venture funding.
- rb808 9y ago
  So if you think it just "codified rules that almost all public companies were already doing." and there have been surprisingly few convictions using the law - then we might as well remove it then. (I do believe that SOX is an unnecessary burden)
jedberg 9y ago
As someone who had to deal a lot with SOX compliance throughout my career, I would love to see the regulations loosened. They are overly onerous and in many cases downright bad, because they are so broadly written. At the same time, enforcement is terrible, because of the same broadly written rules. Basically, you and your auditor work together to come up with an overly complex set of rules that somewhat meets the requirements, then your auditor brings in a bunch of consultants to help you implement their rules, which usually just means checking a lot of boxes, and then everyone calls it a day. So really all it does is create a lot of work for a lot of people for very little gain. In a lot of cases we were going to do some of that stuff anyway, but now we had to slow down and show the auditor all the work. An auditor who usually doesn't care -- all they want to do is be able to say "yep I watched their presentation on this". So I was quite surprised by the headline, that the auditor firms would want to roll it back. It's basically just a huge money maker for them. And then I saw what they want to change -- they want to make the rules looser on how the auditors are audited. Basically they want to be able to keep being lazy. SOX had great intentions but was one of the most poorly implemented regulations ever.
- Shivetya 9y ago
  I would not want to know what my employer spends but I know it takes my team of five plus a director four to six days to get through it all. the amount of seemingly useless documentation is what irks me . I am sure there is value there but the whole thing comes across as a pointless exercise in compliance with whatever whims they have this year added onto previous requirements
  - lavezzi 9y ago
    A lot of the additional requirements year on year are driven by mandates from the PCAOB. If the audit firms do not comply then they are hit hard during the PCAOB reviews of their audit files.
- hbharadwaj 9y ago
  I currently work in Tech Strategy at a Big 4 - the reason why Big 4s want to roll it back is because over the last few years, their revenue in audit is steadily decreasing. Especially with automated tools, outsourcing, RPA taking over and making a lot of the grunt work significantly cheaper. At the same time, the consulting revenues are significantly going up. SOX limits the scope of work the Big 4 can execute at firms they audit (nothing related to financially significant systems etc.). The best client relationships are with the firms the Big 4 audit! Hence, the push!
RichardHeart 9y ago
I believe audit firms are paid by the hour. I believe audit firms make more money when they work more hours. I believe audit firms make more money under Sarbanes-Oxley than not under it. If this is true, why would they lobby to have less revenue?
- jedberg 9y ago
  Look at they article. What they are lobbying for is looser regulations on the auditors so they can keep being lazy.
  - lavezzi 9y ago
    You say you read the article but I don't think you understood it. They want to loosen restrictions so they can sell additional work (that they are currently prohibited to provide) to public clients of which they provide audit services.
    - jedberg 9y ago
      I understood it perfectly. They want to provide more services so that they can say "this is out of compliance but pay us money and we can fix it". But their "fix" is just looking over your shoulder and checking a few boxes. But the other part of what they want is then not have the government looking over their shoulder to see what they did.
      - lavezzi 9y ago
        I still don't think you understand. They are prohibited from offering consulting services to audit clients which is completely different from 'compliance'. This is about auditor independence rules. The article states that the Big 4 are lobbying against making PCAOB disciplinary proceedings public. Disciplinary proceedings are and will be in place in the future so i'm not sure where you are getting that they do not want the government looking over their shoulder. Yes, in a perfect world i'm sure they don't want the PCAOB breathing down their neck but it's part and parcel of the job.
stretchwithme 9y ago
Instead of so much regulation, I think there should be more focus on incentivizing executives as if they were owners. Owners with most of their net worth tied up in a company usually act more in the long term best interests of the company. They care less about what Wall Street thinks and more about where the company will be in 5 years, 10 years, 20 years. Instead of stock options they can cash in when they hit short term goals, how about actually buying stock and receiving stock that managers can only sell several years after they get it? At the very least, rate companies on whether they do this or not. Or are actually managed by owners.
lamontcg 9y ago
Read this as "Global Adult Films are Lobbying to Dilute Sarbanes-Oxley Reforms" I need more coffee and a shower.

One of my good friends was an investment banker who specialized in IPO's from 2000 to 2011. When ever I asked him about Sarbanes-Oxley chilling IPO's he would always say that the only people who claim the legislation slowed down IPO's were people on chat boards who had no relation to the process at all. From an auditors perspective it might raise some complications but from a companies perspective, it just codified rules that almost all public companies were already doing. I mean, even on hacker news, you'll find people parroting the sentiment that Sar-box slowed down IPO's but they never really seem to be able to identify just why, or what specific rule it is that is keeping companies private. n Its always some non specific thing they point to, like more regulation or liability of C level executives. I mean the retort is probably what percentage of public companies have been brought private strictly because of this rule or how many executives have been sent to jail under this rule. The below article is from 2012 but it lays out my point pretty well I think: http://blogs.reuters.com/alison-frankel/2012/07/27/sarbanes-oxleys-lost-promise-why-ceos-havent-been-prosecuted/ http://blogs.reuters.com/alison-frankel/2012/07/27/sarbanes-...

logicallee 9y ago
Reminds me of my good lawyer friend who says high legal fees don't impact startups at all. /s Here in the real world Sarbanes-Oxley has a huge burden on actual auditors and accountants at public companies. It's not some afterthought, the burden on companies is huge. You can hardly talk with a controller/auditor without hearing about it. Why would anyone make that up? It's just a record keeping and reporting burden, it's just a nuisance. Nobody gets anything out of exaggerating that nuisance.
- koolba 9y ago
  And it has a huge impact on the bottom line of consultancies and external auditors. SOX, and more recently Dodd-Frank, has been a cash cow for those groups.
arcanus 9y ago
I'm not sure I agree. I think that this has consolidated the IPO market to only a few major banks that are capable of acting as underwriters. Empirically, the number of IPOs in the USA has dropped, and the size has increased. So the data is consistent with there being a larger regulatory burden on businesses going public.
- chollida1 9y ago
  > Empirically, the number of IPOs in the USA has dropped, and the size has increased. So the data is consistent with there being a larger regulatory burden on businesses going public I'll agree with the first sentence. However it is not anywhere near enough to imply the second sentence. And lots of smart people agree... https://www.bloomberg.com/view/articles/2015-06-24/where-have-all-the-publicly-traded-companies-gone- https://www.bloomberg.com/view/articles/2015-06-24/where-hav... > The study also looked into the old argument that "regulatory and legal changes in the early 2000s, including Regulation Fair Disclosure ('Reg FD') and the Sarbanes-Oxley Act ('SOX'), made it more expensive" to list. These played little or no role because the decrease in new listings was "well on its way before these changes took place." At worst, the regulatory burden accounts for only a small portion of the decline.
- Dwolb 9y ago
  >Empirically, the number of IPOs in the USA has dropped, and the size has increased. The empirical evidence could also be explained by other factors such as increases in availability of venture funding.
rb808 9y ago
So if you think it just "codified rules that almost all public companies were already doing." and there have been surprisingly few convictions using the law - then we might as well remove it then. (I do believe that SOX is an unnecessary burden)

jedberg 9y ago

As someone who had to deal a lot with SOX compliance throughout my career, I would love to see the regulations loosened. They are overly onerous and in many cases downright bad, because they are so broadly written. At the same time, enforcement is terrible, because of the same broadly written rules. Basically, you and your auditor work together to come up with an overly complex set of rules that somewhat meets the requirements, then your auditor brings in a bunch of consultants to help you implement their rules, which usually just means checking a lot of boxes, and then everyone calls it a day. So really all it does is create a lot of work for a lot of people for very little gain. In a lot of cases we were going to do some of that stuff anyway, but now we had to slow down and show the auditor all the work. An auditor who usually doesn't care -- all they want to do is be able to say "yep I watched their presentation on this". So I was quite surprised by the headline, that the auditor firms would want to roll it back. It's basically just a huge money maker for them. And then I saw what they want to change -- they want to make the rules looser on how the auditors are audited. Basically they want to be able to keep being lazy. SOX had great intentions but was one of the most poorly implemented regulations ever.

Shivetya 9y ago
I would not want to know what my employer spends but I know it takes my team of five plus a director four to six days to get through it all. the amount of seemingly useless documentation is what irks me . I am sure there is value there but the whole thing comes across as a pointless exercise in compliance with whatever whims they have this year added onto previous requirements
- lavezzi 9y ago
  A lot of the additional requirements year on year are driven by mandates from the PCAOB. If the audit firms do not comply then they are hit hard during the PCAOB reviews of their audit files.
hbharadwaj 9y ago
I currently work in Tech Strategy at a Big 4 - the reason why Big 4s want to roll it back is because over the last few years, their revenue in audit is steadily decreasing. Especially with automated tools, outsourcing, RPA taking over and making a lot of the grunt work significantly cheaper. At the same time, the consulting revenues are significantly going up. SOX limits the scope of work the Big 4 can execute at firms they audit (nothing related to financially significant systems etc.). The best client relationships are with the firms the Big 4 audit! Hence, the push!

RichardHeart 9y ago

I believe audit firms are paid by the hour. I believe audit firms make more money when they work more hours. I believe audit firms make more money under Sarbanes-Oxley than not under it. If this is true, why would they lobby to have less revenue?

jedberg 9y ago
Look at they article. What they are lobbying for is looser regulations on the auditors so they can keep being lazy.
- lavezzi 9y ago
  You say you read the article but I don't think you understood it. They want to loosen restrictions so they can sell additional work (that they are currently prohibited to provide) to public clients of which they provide audit services.
  - jedberg 9y ago
    I understood it perfectly. They want to provide more services so that they can say "this is out of compliance but pay us money and we can fix it". But their "fix" is just looking over your shoulder and checking a few boxes. But the other part of what they want is then not have the government looking over their shoulder to see what they did.
    - lavezzi 9y ago
      I still don't think you understand. They are prohibited from offering consulting services to audit clients which is completely different from 'compliance'. This is about auditor independence rules. The article states that the Big 4 are lobbying against making PCAOB disciplinary proceedings public. Disciplinary proceedings are and will be in place in the future so i'm not sure where you are getting that they do not want the government looking over their shoulder. Yes, in a perfect world i'm sure they don't want the PCAOB breathing down their neck but it's part and parcel of the job.

stretchwithme 9y ago

Instead of so much regulation, I think there should be more focus on incentivizing executives as if they were owners. Owners with most of their net worth tied up in a company usually act more in the long term best interests of the company. They care less about what Wall Street thinks and more about where the company will be in 5 years, 10 years, 20 years. Instead of stock options they can cash in when they hit short term goals, how about actually buying stock and receiving stock that managers can only sell several years after they get it? At the very least, rate companies on whether they do this or not. Or are actually managed by owners.

lamontcg 9y ago

Read this as "Global Adult Films are Lobbying to Dilute Sarbanes-Oxley Reforms" I need more coffee and a shower.