2012 Candidates Target Costly Enron-Era Law Aimed atThwarting Accounting Fraud

After serving more than a quarter-century in the House and leaving office almost five years ago,Oxley practices law and advises both his private clients and the federal government on how tonavigate thorny corporate governance issues. Interviewed in Washington this week, the formerlawmaker defended his signature piece of legislation but acknowledged that it may be time to re-examine and revise selected portions of it -- including Section 404.

James Rosen joined Fox News Channel (FNC) in 1999. He currently serves as the chief Washingtoncorrespondent and hosts the online show "The Foxhole."

Estimates of the costs that Section 404 has imposed on American businesses have varied. Intestimony before the House Financial Services Committee last month, J.W. Verret, a scholar at theconservative Mercatus Center at George Mason University, told lawmakers the Securities andExchange Commission vastly underestimated how much Section 404(b) -- the part requiring outsideaudits -- was forcing firms to shell out. The agency's initial projection of $91,000 per company, hesaid, later gave way to a revised SEC estimate of $2.87 million.

Similarly, economist John Berlau of the Competitive Enterprise Institute, a conservative think tank inWashington, notes that in the years prior to Sarbanes-Oxley's enactment, the median marketcapitalization of a company going public was $52 million; today, that figure stands at $227 million.

In various precincts of the nation's capital, an appetite for such revisions appears to be growing.

October 11, 2011: Republican presidential candidates from left facing camera participate in a

presidential debate at Dartmouth College in Hanover, N.H., Tuesday, Oct. 11, 2011. (AP)

The last of Perry's repeal targets was Section 404 of the Public Company Accounting Reform andInvestor Protection Act, better known as Sarbanes-Oxley, or SOX for short. It was a landmarkoverhaul of the accounting and bookkeeping practices of publicly traded companies.

"Frankly, the large corporations have come to terms with it. It's the cost of doing business," theformer lawmaker said. "A lot of people I talk to now say that they feel that it was tough medicine,but in many ways, you needed that to restore confidence in the investing public."

Lost in the hoopla surrounding Texas Gov. Rick Perry's roll-out of his flat-tax policy on Tuesday washis simultaneous call for the repeal of three laws: President Obama's health care initiative, the Dodd-Frank reform of the financial services sector -- both standard fare for conservatives this year -- andone other statute, an obscure provision of a law that has been on the books for nearly a decade.

While he agreed that the costs of Section 404 "outweighed the benefits" in Sarbanes-Oxley's initialyears on the books, Oxley argued the two are now "starting to come into a little bit moreequilibrium," thanks to revised SEC procedures and smarter, more efficient practices andtechnologies utilized within the regulated firms.

Now, in a campaign season where excessive regulation has emerged as an improbable yet potentissue on the stump, Sarbanes-Oxley and its legacy are drawing new scrutiny on the 2012 GOPpresidential campaign trail.

"This was all about accounting fraud, and I think a lot of people forget a little bit about the history ofEnron and WorldCom, and some of these tragedies that cost people their jobs and their life savings,"Oxley told Fox News. "We've not had, as far as I know, a single case of the kind of broad accountingfraud that occurred in Enron and WorldCom. ... So from that perspective, I think it's been quiteeffective."

Surprisingly, the GOP-controlled panel was outdone in this regard by President Obama's jobs

council, which recommended an exemption for all companies with market capitalization of up to $1billion. And even House Minority Leader Rep. Nancy Pelosi, one of the chamber's most liberalDemocrats, has said of Sarbanes-Oxley, "I don't think you need the whole package."

And not just from Perry. Number 10 in the 59-point economic plan put forward by formerMassachusetts Gov. Mitt Romney last month is a pledge that the candidate, if elected, "will seek toamend" Sarbanes-Oxley, to make compliance with it "less onerous" for mid-sized companies. WhileRomney did not mention Section 404 explicitly, there was no mistaking which provision he had inmind.

"We didn't write (the law) in stone," Oxley told Fox News. "I think it's highly likely and probably agood thing that you'd have some revisions."

Former House Speaker Newt Gingrich and Rep. Michele Bachmann of Minnesota have both calledfor the outright repeal of Sarbanes-Oxley. And so, too, has Rep. Ron Paul, who has the strongestrecord on the issue: The self-declared libertarian from Texas was one of only three House lawmakerswho voted against Sarbanes-Oxley back in 2002.

The Capital Markets and Government Sponsored Entities Subcommittee of the House FinancialServices Committee voted earlier this month to exempt for Section 404 those companies with marketcapitalization of up to $350 billion.Â

"This means that average investors are now often shut out of the company's growth to the $200million mark," Berlau has written. "As a result, these companies do not have the same access to thepublic capital markets that Wal-Mart and Home Depot did in their early years. And individualinvestors do not have the same opportunity to build wealth with them."

Enacted in the wake of the Enron and WorldCom scandals and the ensuing collapse of auditing giantArthur Andersen, the measure was named for its co-sponsors -- Democratic Sen. Paul Sarbanes ofMaryland and Republican Rep. Michael G. Oxley of Ohio -- and signed into law by President GeorgeW. Bush in July 2002.

http://www.foxnews.com/politics/2011/10/27/decade-old-accounting-regulation-becomes-popular-target-on-2012-campaign-trail/

Long seen as the law's most controversial provision, Section 404 requires public companies toinclude in their annual reports both the firm's own assessment of its "internal controls" and anoutside auditor's assessment.Â

"Some large firms pay $5 million a year. The smaller firms, it's even worse. They pay a loweramount, but it's a much higher part of their revenues," Verret told Fox News. "Investors are payingin the form of lower returns. That money is spent on just paying more to auditors and accountants toreally help these companies comply with the new red tape."

To reduce costs further, Oxley said he would be open to an amendment of the law whereby thosecompanies that have consistently demonstrated excellent compliance with Section 404 could beallowed to post the requisite audits once every two years, instead of annually.