Group Opposes Sarbanes Exception
A proposal to exempt 80% of public companies from having auditors certify their internal controls “simply goes too far,” former Federal Reserve Chairman Paul Volcker and former Securities and Exchange Commission Chairman Arthur Levitt told regulators.
In a Feb. 13 letter to the SEC, a group including Volcker and Levitt said the proposal would undercut the 2002 Sarbanes-Oxley Act by failing to safeguard against future accounting and company fraud. The letter was sent to SEC Chairman Christopher Cox and to William Gradison, acting chairman of the Public Company Accounting Oversight Board.
“In passing the Sarbanes-Oxley legislation, the Congress adopted a reasonable approach to achieve real reform, not just the appearance of reform,” the letter said. “It would be unfortunate now if the SEC and [the accounting oversight board] undercut the effectiveness of congressional legislation through misguided regulatory action.”
The law currently requires all public companies to have their internal controls validated each year by an auditor. Internal controls are the checks that companies put in place to provide reliable financial reports and comply with regulations.
The SEC’s Advisory Committee on Smaller Public Companies intends to recommend in April that only the largest 20% of public companies be required to have their internal controls approved by auditors.
“People will ask who was responsible for a policy decision resulting in such sweeping exemptions,” the letter said.
The letter challenging the SEC’s proposal was also signed by John Biggs, former chairman and chief executive of pension plan manager TIAA-CREF; John Bogle, founder and former chairman of Vanguard Group Inc., and former U.S. Comptroller General Charles Bowsher.
The Wall Street Journal reported on the letter Tuesday. The proposed exemption would free companies with less than $700 million in stock-market value from the internal-control requirement. Critics including the U.S. Chamber of Commerce say smaller companies cannot afford to comply with it .
The SEC in 2003 estimated that compliance would cost companies an average of $91,000 a year each. Financial Executives International, a professional organization, said companies with less than $100 million in market value expected to spend an average of $824,000 annually to comply.
