Having spent over 30 years in public accounting, I have had the opportunity to observe and work with a large number of corporate boards, particularly their audit committees. With my entire public accounting career being pre-Sarbanes-Oxley (SOX), and my board membership being post-SOX, I have a unique perspective to gauge its impact.
To say that SOX got off to a bad start is an understatement. Company management and independent accountants were asked to implement the new internal control reporting requirements -- the most onerous of the SOX requirements -- with little or no guidance. Guidance was eventually issued, but very late in the year of implementation, creating a great deal of confusion and wasted effort.
This was coupled with the fact that SOX also created the Public Company Accounting Oversight Board, which established new audit standards and has the power to review and discipline accounting firms. At the time, independent accounting firms were being criticized for not being independent enough, i.e., too cozy with the companies they audited. As a result, many public accounting firms went overboard and virtually stopped consulting with their clients on difficult audit and accounting issues, causing even more confusion, frustration and wasted time.
On top of everything else, the accounting firms were understaffed to do the additional work required by SOX; they ended up firing marginal clients and were able to raise fees with impunity. Needless to say, the cost and internal disruption of implementing the internal control reporting requirements were horrendous and exceeded everyone's expectations, which gave the entire SOX Act a bad name.
The good news is that today there is reasonable and understandable guidance on internal control reporting. Accounting firms, at the direction of the SEC and PCAOB, are again consulting with their clients on accounting and audit issues, and the accounting firms are adequately staffed to meet the demand for their services. In fact, the major firms are again actively competing for audit clients and fees have again become a factor; price competition for audit services has returned to the market place.
SOX also resulted in many positive changes to corporate governance, such as board member independence standards, regular executive sessions among independent directors, independent nominating committees, financial literacy standards for audit committee members, board self-evaluations and others. In my opinion, board members today take their responsibilities more seriously and are more actively engaged than they were a decade ago.
I can say after serving as audit committee chair of five public companies that audit committee members are better informed and ask more probing questions not only of company financial management, but also of the independent accountants. I'm not sure that the adoption of SOX was cost justified, but public company boards and their committees are better because of it.
Howe serves on various boards and was recognized by the Corporate Directors Forum for Lifetime of Achievement in Corporate Governance in 2008.